Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

EYRE REVIEW

Resolved,

That an humble Address be presented to Her Majesty, That she will be graciously pleased to give directions that there will be laid before this House a Return of the Report of the inquiry of the future of lyric theatre in London by Sir Richard Eyre.

Oral Answers to Questions — HEALTH

The Secretary of State was asked—

Kidderminster Hospital

Mr. Christopher Gill: If he will visit south Shropshire to assess the effect upon the local community of proposals to reduce the range of facilities available at Kidderminster hospital. [46601]

The Parliamentary Under-Secretary of State for Health (Mr. Paul Boateng): The ministerial team conducts a wide-ranging programme of regional visits. I take particular interest in the west midlands, as the hon. Gentleman will know. I have no immediate plans to visit south Shropshire.

Mr. Gill: My constituents will be disappointed by that reply. I and they are conscious of the fact that Kidderminster hospital is not the only hospital in this country to be facing either closure or cuts. There are many testimonials to the Labour party's broken election promises. May I remind the Minister of what his colleague the hon. Member for Wyre Forest (Mr. Lock) said during the election campaign? He said:
We will only prevent further cuts at Kidderminster if the Government provides enough money to the Health Authority to fund the hospital"?

Mr. Boateng: The hon. Gentleman well knows that the agenda at Kidderminster is not a cuts agenda. He is well aware—because he has been a party to them—of the discussions that have taken place between his health authority and all parties interested in the Kidderminster hospital. Submissions will come to Ministers in due course, and decisions will be taken in the best interests of all the people of Kidderminster.

Mr. David Lock: Is not a high standard of care provided by the staff and management at Kidderminster, which led to that hospital getting a charter mark last year? Does not the hospital deserve praise for its fall in emergency admissions? In comparison, every other hospital in the west midlands has seen rises. Will my hon. Friend accept the thanks of my constituents for the extra £13.5 million of Government money provided since the election to Worcestershire health authority, which will give the possibility of options for Kidderminster? Must not all those important factors be taken into account by his right hon. and hon. Friends when deciding the best configuration for acute services in the county?

Mr. Boateng: My hon. Friend is a stout defender of the interests of the NHS in his constituency, and I join him in thanking all those who have contributed to the success of the hospital and its earning of a charter mark. The Government are committed to making sure that there is investment year on year in the NHS to enable its staff to deliver the high-quality health care that is the due of each and every person in this country. That is why the Government have found an additional £2 billion for the NHS since the last general election—money that the Conservative party would never have found.

Dental Services (Shropshire)

Mr. Peter Bradley: What steps he is taking to meet the dental health needs of the people of Shropshire. [46602]

The Minister of State, Department of Health (Mr. Alan Milburn): Seven investing-in-dentistry funding requests from Shropshire health authority have been approved to make national health service dental services available to thousands in the area. Access to NHS dentistry should also benefit from the approval of a first-wave personal dental service pilot in Shropshire, due to commence on 1 October 1998.

Mr. Bradley: Many people will benefit from the £19 million that the Government are putting into NHS dentistry. Some 20,000 people in Shropshire—my constituents, as well as those of the hon. Member for Ludlow (Mr. Gill)—will benefit from the schemes. However, can my hon. Friend give any hope to the remaining 36,000 people in Shropshire of the 56,000 who lost access to NHS dentistry when the previous Government reneged on fee agreements with NHS dentists? Will those people have their access to NHS dentistry restored in future years?

Mr. Milburn: I am grateful for my hon. Friend's support. I assure him that we shall continue to do everything that we can to improve access to NHS dentistry in Shropshire and the rest of the country. I can report that, so far, we have approved 140 investing-in-dentistry projects, giving extra access to NHS dental care to 250,000 patients who would not otherwise have had it. We are doing that by offering the NHS dentist a grant in exchange for continuing to treat NHS patients. In other words, this Government are bringing back into the health service dentists whom the previous Government drove out.

Hospitals (Clinical Performance)

Dr. Desmond Turner: What action he is taking to improve patients' access to information about local hospitals' clinical performance. [46603]

Fiona Mactaggart: What action he is taking to improve patients' access to information about local hospitals' clinical performance. [46615]

The Secretary of State for Health (Mr. Frank Dobson): We want to develop a system that will provide general practitioners and their patients with access to fair and accurate indications of clinical performance in their local hospitals. As a first step, we shall publish later this year a number of hospital-based clinical indicators on deaths and complications covering a range of operations.

Dr. Turner: Is not the public availability of meaningful information on clinical outcomes an absolute prerequisite for achieving the universally high standards of clinical performance that the Government want? Moreover, had we had such data in the public purview before now, we might have detected sooner such unfortunate occurrences as the poor surgical performance on babies in Bristol or the appalling record of hip replacements. Does my right hon. Friend agree that the data can be of vital help in transforming the health service?

Mr. Dobson: It is certainly our wish that the various arrangements that we are making to set quality standards and make sure that they are met will avoid awful occurrences such as the deaths of babies who had heart operations in Bristol, the cervical cancer screening failures in Kent and Canterbury and the breast cancer screening failures in Devon and Exeter. To do that, it will be necessary for the people who are conducting the operations and the hospital management to have data available to them, and we believe that it should be made available also to local general practitioners and patients.

Fiona Mactaggart: I congratulate my right hon. Friend on using the opportunity of the 50th anniversary of the NHS to end the cloak of professional secrecy that has kept patients in the dark about the results of treatments. However, I urge him to think carefully about how he presents the information. There are areas of clinical practice where information is publicly available—for example, for in vitro fertilisation and other fertility treatments. Those tables can be misleading because clinics that use the most adventurous treatments or treat older women seem to have less successful results than those that use basic treatments, treat conservatively or treat young women. I urge my right hon. Friend, in publishing this information—which I welcome enormously—to think about the quality of information to patients, so that they can understand it as well as possible.

Mr. Dobson: It is certainly the case that we are trying to make sure that any information that is published commands the support of the professionals involved. As I said in my first answer, that means making sure that the information is both fair and accurate.
I have said in the House before, and I will say again, that Great Ormond Street hospital for sick children is in my constituency. The surgeons there frequently perform

extremely difficult and complex operations on children who have already undergone operations in other hospitals. Sadly, the children often die, despite the efforts of the doctors, nurses and other staff at Great Ormond Street.
We certainly need to have in place a system that reflects the complexity of operations and the state of health of the patients. I am determined to have statistics that properly reflect all the circumstances; without them, no one, least of all the patients who would otherwise be misled, will benefit.

Mrs. Jacqui Lait: Is not one of the most useful techniques to determine clinical excellence Health Services Accreditation? Can the Secretary of State assure me that its disposal will be carried out to the highest possible standards, that no undue influence will be exerted on such disposals, and that those involved in the process who may have a conflict of interest will be invited to withdraw and fall silent?

Mr. Dobson: The process of accreditation of a group of doctors or an institution necessarily involves judgments by other doctors. There is no way people without the necessary professional expertise can judge other people's professional expertise. From time to time, there may appear to be conflicts of interest because of connections within the medical and other professions. We shall try to avoid that—but we cannot get away from the fact that the only people capable of judging professional competence are other members of the same profession. We do need outside influence, but in the end there is no point in getting someone who is not a liver transplant expert to judge the skill of another liver transplant expert.

Dr. Evan Harris: Does the Secretary of State accept that the inquiry into the Bristol scandal may find that the problem was not to do with the publication of data but rather to do with the failure to act on data known to the professionals? Given the way that the media may report such data, is there not a danger of repeating the second-generation pill scare? Information wrongly portrayed in that case led to greater inefficiency, poorer health, and a greater number of unwanted pregnancies and abortions.
Finally, does the right hon. Gentleman agree that there may be an increased use of palliation instead of operations; and that clinical judgments may be distorted in an attempt by surgeons to avoid appearing low down league tables when dealing with difficult, possibly terminal cases?

Mr. Dobson: I am not quite sure from that whether the Liberal party is for or against the publication of this information. I thought that I had made it clear that we want the statistics published to show the nature and complexity of the operations and the general state of health of the patients. As far as I know, that commands the support of the representatives of the medical, nursing and midwifery professions; providing that we act in this way, none of the problems to which the hon. Gentleman refers should arise. Meanwhile, someone in the Liberal party needs to make it clear whether it believes in keeping the information secret or making it public.

Teenage Smoking

Mrs. Sylvia Heal: What initiatives he is bringing forward to reduce the incidence of teenage smoking. [46604]

The Minister for Public Health (Ms Tessa Jowell): The Government's strategy on smoking, including plans to reduce smoking among young people, will be set out in detail in the tobacco control White Paper to be published later this year.

Mrs. Heal: Does my hon. Friend agree that, if we are to protect our children and young people from the dangers of smoking, we must try a variety of methods, including controlling access to cigarettes and a ban on tobacco advertising? I hope that she will join me in congratulating Sandwell health authority and trading standards officers, who have carried out a number of visits to traders to advise them of their obligations. They have also attempted some test purchases which, in some cases, have resulted in prosecutions and fines.
I am sure that my hon. Friend is also aware of the report that ASH—Action on Smoking and Health—published last week, exposing the activities of members of the tobacco industry who target children. One of the bosses, speaking of teenagers, said, "They got lips, we want them." Is it not shameful that the only contribution of the Conservative party has been to block a ban on tobacco advertising?

Ms Jowell: Yes, it is shameful; and yes, I am delighted to join my hon. Friend in commending the efforts of authorities such as Sandwell that are seeking to protect young people from the effects of tobacco. The figures speak for themselves: there are 160,000 more regular smokers among children between the ages of 11 and 15 than there were 10 years ago. Children smoke the most regularly advertised brands of cigarettes. At current rates, smoking will kill about 1 million of today's children in their middle years. That is why it was so important that the UK Government acted, where the previous Government had failed to act, to secure a European Union-wide ban on the advertising and promotion of tobacco last week.

Mr. Alan Duncan: Does the Minister believe that the incidence of teenage smoking will be reduced by the publication by her Department—at public expense—of a glossy magazine about health targets, which contains no fewer than 32 photographs of herself? What is the justification for that extraordinary publication? Does she hope that it will distract youngsters from poster sites, or does she see herself as a ministerial nicotine patch?
I speak as a non-smoker who also believes in choice. Given that there is little or no evidence to suggest that teenagers are tempted to smoke by adverts, even if they are keen on racing cars, will the Minister accept that discipline by parents and schools, and education about the harmful effects of that self-polluting habit, are what is required? What is her budget for such health education, and how will she concentrate it on the young?

Ms Jowell: Yes, I agree that health education is important, and yes, I agree that parental dissuasion from

smoking is also important, but it is absolutely clear that the rate at which young people smoke will not decrease unless we ban tobacco advertising. The Conservative party, when in government, steadfastly stood in the way of protecting children's health, by blocking the European ban on tobacco advertising.

Mr. Vernon Coaker: Does the Minister agree that, if we are to tackle the scourge of the increase in teenage smoking, we must give young people good role models, not only to educate them on the harmful effects of cigarette smoking, but to present to them the fact that it is uncool to smoke? Unfortunately, many young people see cigarettes as a fashion accessory. Unless we tackle that aspect in our health education literature and promotions, we shall find it very difficult to reduce the incidence of teenage smoking.

Ms Jowell: I entirely agree with my hon. Friend. He has drawn attention to another reason why the Government must lead on a range of strategies in order to reduce smoking among children—but it is our intention to reduce smoking among children, and we shall deliver on it.

Finished Consultant Episodes

Mr. Ian Bruce: How many patients were treated by the NHS in each of the last five years; and what was the average waiting time for hospital treatment. [46605]

The Minister of State, Department of Health (Mr. Alan Milburn): Approximately 8 million, 8.6 million, 9 million, 9.3 million followed by a record 9.5 million finished consultant episodes in 1997–98. The average waiting time for admission was 45 days in 1995–96, the latest year for which figures are currently available.

Mr. Bruce: I am grateful to the hon. Gentleman for those figures, which demonstrate the success, over 50 years of the NHS, of constantly treating more patients. I am sure that he would wish to congratulate the NHS on that—and to congratulate the Conservative party on having been in charge of the NHS for 35 of those years. However, I wonder whether he would agree that, as we try to increase the number of people going through the NHS and to shorten waiting lists, one of the most important objectives should be to reduce waiting times. Can he pledge to the House that when—if—he ever shortens waiting lists, he will also have started to reduce waiting times?

Mr. Milburn: I can tell the hon. Gentleman that we have already started to reduce waiting times. For the first time since records began, there are no people waiting 18 months or more for treatment. We shall continue to make progress on that. The hon. Gentleman and his party should grasp the point that, as we reduce waiting lists, we shall reduce waiting times. With regard to his party's custody of the national health service, I remind the hon. Gentleman that his party opposed the creation of the NHS.

Mr. David Winnick: Is it not important to have a national health service? Arising from


what my hon. Friend has just said, and in view of the 50th anniversary of the NHS this Sunday, would it not be appropriate for the Tory Opposition, especially Front-Bench Members, to apologise to the country for the fact that their party did all that it could, in Parliament and outside, to stop the national health service coming into being? Would it not be a sign of humility if the new health spokesperson for the Conservative Opposition made that apology today?

Mr. Milburn: That is a matter for the right hon. Lady.

Mr. Simon Hughes: Now that it appears from press briefings that Ministers have accepted that, if more patients are to be treated more quickly and better, significantly more money is needed for the health service—there is apparently to be an announcement about that—and that a proper inspectorate is needed to ensure decent quality—there is apparently to be an announcement about that, too—will there also be an announcement that we are to have a more democratic health service at the end of the Government's period in office? Will we have representatives accountable to the public taking regional strategic decisions, and patients and ordinary people taking local health decisions? Are we to have a professionals-run health service, or a people's health service?

Mr. Milburn: We shall not have direct elections to NHS boards, if that is what the hon. Gentleman is asking, but I give him this assurance. We have had the national health service for 50 years, and its achievements have been immense. I am sure that everyone in the House would want to pay tribute to all the work that all the staff have done for all that time. However, the NHS has never done a very simple thing: we have never asked patients what they want from the national health service, and what they think about the local services that the NHS delivers. We shall do that for the first time this year. There will be the first annual national survey of patients. It will happen later this year, next year and every year thereafter. It will enable us to give patients a hand in decision-making in the NHS.

Dr. Brian Iddon: Is it not the case that the national health service is owed a colossal sum of money, some of it by those indulging in private practice? If that money had been collected in 1996 alone, is it not true that we should not have been left with the mess of long waiting lists?

Mr. Milburn: As my hon. Friend knows, last year this Government directed the NHS to do what it should always have done: to make first use of NHS capacity, before considering referring to the private sector.

Rev. Martin Smyth: I join in the praise of the national health service but, with reference to waiting time, will the Minister give us an assurance that the time taken by the general practitioner to get in touch with the consultant will be taken into account? There is a tendency to ignore that, and some patients are waiting far too long to see a consultant.

Mr. Milburn: I agree with the hon. Gentleman. Patients are sick of waiting for GP appointments and

out-patients appointments. They are sick of waiting to get into hospital, and some even have to wait to get out of hospital. That is why the Government are pledged to get waiting lists down. As we get waiting lists down, we shall get waiting times down as well.

Mr. Bob Blizzard: Is my hon. Friend aware of the enormous success of the James Paget hospital, which serves my constituency, which has reduced waiting lists by 375 patients in the months from January to May this year? Following the increase in resources that the hospital has received from the Government, it expects to have reduced waiting lists by March 1999 to 225 below the figure for March 1997. Is that not proof that, in my constituency, the pledge is being honoured?

Mr. Milburn: I thank my hon. Friend, and I should be grateful if he would pass on Ministers' thanks for the enormous efforts that are being made in his local hospital. We want to see that achievement replicated everywhere. We are confident that that will occur and that, by March next year, waiting lists will be lower than the record level that we inherited in May last year.

Mr. Dafydd Wigley: Does the Minister accept that, when the NHS was established 50 years ago, it drew heavily on the egalitarian principles that were the background to the service in Wales? Those principles enshrined the idea that people should have access to health care in line with their needs and not their ability to pay. Given that those are the principles of the national health service, will the Minister assure the House today that it is Government policy that every person who needs a life-saving, life-enhancing or pain-reducing treatment will get it as quickly on the NHS as by going privately? If that cannot happen now, when will it be achieved?

Mr. Milburn: That is precisely what we want to see for the national health service. The Government were elected on a manifesto pledge that the national health service will be there for patients when they need it. Need and not people's ability to pay or who their general practitioner is should be the factor that determines how health care will be made available to individual patients.

Mr. Richard Burden: When Opposition Members talk about their custody of the national health service, does my hon. Friend agree that it is worth reminding them that, when they left office, waiting lists were at a record high and rising? Will my hon. Friend expand on his previous comments about the need for a comprehensive health service? An insidious element of the previous Government was that treatment depended on who one's general practitioner was rather than clinical need. Does my hon. Friend agree that clinical need should be the sole criterion for NHS treatment?

Mr. Milburn: My hon. Friend is absolutely right: the Conservatives' record on waiting lists and waiting times is far from happy. During their 18-year tenure of office, 400,000 people were added to the waiting list. The previous Government never managed to achieve what we shall achieve in office: getting waiting lists down not just this year but next year and in subsequent years. We shall achieve that goal and, when we do, I hope that Opposition Members will praise us.

Mr. Peter Bottomley: I am sure that we shall. Do not the elderly—not just in Worthing but


throughout the country—wait the longest for treatment? Emergency services are usually utilised by young people while the elderly need cataract, hip and heart treatments and the like. Does the Minister agree that resources matter in large part? When does he expect that his Government will see a real increase in resources each year that matches the average for the 18 years in which the Conservatives cared for the health service?

Mr. Milburn: Shortly.

National Institute for Clinical Excellence

Mr. Steve Webb: To what extent health authorities will be able to disregard the guidelines issued by the proposed national institute for clinical excellence. [46606]

The Minister of State, Department of Health (Mr. Alan Milburn): We shall be consulting shortly on our proposals for the national institute for clinical excellence. We intend that its guidance will apply to all health authorities. We do not expect that any health authorities or individual clinicians will disregard advice from the national institute, but they will need to take account of local circumstances and the needs of individual patients when implementing guidance.

Mr. Webb: I am grateful to the Minister for that response. I tabled the question because some of my constituents who would benefit from using beta interferon to treat multiple sclerosis cannot receive that treatment because they live in Avon. However, if they lived in Somerset, they could receive that treatment. Some of my constituents have paid privately for the treatment and are benefiting from its use. Will the Minister give a cast-iron assurance that the national institute for clinical excellence will introduce a guideline, stating that this drug works and is effective, that will be followed uniformly across the country?

Mr. Milburn: I am aware of those concerns and of the particular problems experienced in Avon. Department of Health officials have examined carefully Avon health authority's policy on beta interferon. It is fair to say that we have the worst of all worlds at present: too many unproven treatments are introduced into the national health service too quickly while too many proven treatments, on both cost and clinical grounds, are introduced too slowly. The consequence is a lottery of care. The national institute and national service frameworks are about guaranteeing fair access to treatment throughout the country. I hope that, when we publish our proposals shortly, the hon. Gentleman will welcome them.

Mr. Barry Sheerman: Does my hon. Friend agree that clinical excellence is at the heart of a good-quality NHS, and should not we be wary this week of being carried away? We have a good NHS, but it could be a darn sight better. For 35 years, it let many people down because the Tories were running it. Many people have been let down by the NHS, and it is our duty to look forward to the next 10, 20 and 50 years. We must ensure first, that the Tories never get their hands on it again and

secondly, that we make it as good for every British citizen as it possibly can be.

Mr. Milburn: My hon. Friend is absolutely right. The best in the NHS is still the envy of the world. We may not have the best football team in the world—time will tell about that—and we certainly do not have the best cricket team in the world, but we do have the best health care system in the world. We should not talk down the prospects of the NHS. We want it to continue to expand and thrive, and to guarantee excellence and high standards everywhere.

Mr. Philip Hammond: The Conservative party welcomes the pursuit of clinical excellence, but the Secretary of State has said that the function of the national institute for clinical excellence will be to give a strong lead on clinical and cost effectiveness. Is it not inevitable that NICE will become part of the rationing mechanism, ruling out the use of certain drugs, treatments and procedures within the NHS? What assurance can the Minister give that, combined with cash limits on general practitioners' prescription budgets, NICE will not place intolerable restrictions on clinical freedom?

Mr. Milburn: I welcome the hon. Gentleman to his first formal appearance at health questions. I assure him that NICE is not a national council for rationing, and I remind him that it was the previous Conservative Government who introduced cash-limited budgets for GPs.

Mr. Paul Flynn: When the House looks back at the NHS in 50 years' time, does my hon. Friend think that one of the causes of celebration will be that the Government challenged the two main causes of waste and inefficiency in the NHS now—the faith in the omnipotence of the individual clinician and the fact that so many decisions are taken for reasons of commercial profit? Will the Government redouble their efforts to ensure that we break away from so much of the mythology-based medicine from which we suffer now and go on to science-based and evidence-based medicine?

Mr. Milburn: I think that the NHS wants evidence-based medicine. I do not think that there has been a time in the past 50 years when the clinical professionals, who, after all, deliver the quality of care that we all want to see for our constituents, have been so geared to improving standards. The Government want a partnership to be forged between the Department of Health and the clinical professionals—in particular, their leaders—to ensure that standards are as high as possible everywhere inside the NHS, and that effectiveness is the driving force for treating patients.

Private Medical Insurance

Mr. Desmond Swayne: What assessment his Department has made of the impact of the ending of tax relief on private medical insurance premiums for the over-60s on the current size of hospital waiting lists. [46607]

The Parliamentary Under-Secretary of State for Health (Mr. Paul Boateng): No formal assessment has been made, but we expect that any additional demand will


be small in comparison with the substantial additional resources that we are making available to the NHS.

Mr. Swayne: It is too early for reliable statistics, but the anecdotal evidence, certainly from my constituents, is that the Government's short-sighted action will have a significant and detrimental impact on waiting lists. Can the Minister rise above dogma for a moment and acknowledge that co-operation with the private sector might just be part of the solution to long waiting lists?

Mr. Boateng: Fifty years on and Conservative Members still have not learnt; they put the interests of private medicine before a national health service free for all at the point of use. When we come to look at the use to which the £140 million that we saved from abolishing that tax relief is put, we shall see that cutting VAT for elderly people's heating bills did more for the health of the elderly than private medicine ever did.

Mr. David Hinchliffe: Is it not a fact that those who queue jump by going private lengthen the queue for everyone else? In the 50th year of the NHS, would not the most appropriate tribute to Nye Bevan be to deal with his unfinished business and get rid of private medicine for the NHS, once and for all?

Mr. Boateng: Each and every person must make a decision in relation to private medical insurance. We are concerned to improve the NHS for all the people, putting the interests of the many before the few—that is the Labour way.

Sir Peter Tapsell: Is it not worth recording that Nye Bevan, whom I greatly liked and admired, not only did not try to get rid of private medicine, but, when he became seriously ill, had all his treatment in private hospitals?

Mr. Boateng: Conservative Members fought against Aneurin Bevan and everything that he stood for. On every occasion, Conservative Members voted against the creation of the NHS. They cannot be trusted with it—we can.

NHS Management Costs

Ms Gisela Stuart: What targets he has set for reduction in NHS management costs by 2002. [46608]

The Secretary of State for Health (Mr. Frank Dobson): Our White Paper, "The new NHS", sets out a programme of action to release £1 billion from bureaucracy over five years. By the end of this year, £240 million that, under the Tories, would have been spent on bureaucracy, will have been released for patient care, which is what the people of this country want.

Ms Stuart: Is my right hon. Friend aware that, in the first year of the Labour Government, my health authority, Birmingham, received an extra £201,000 to improve breast cancer treatment, and £219,000 to improve intensive care for children? Can he confirm that that money was available not least because of his decision to halt the eighth wave of GP fundholding? Can I have some

reassurance that the Labour Government's commitment to primary health groups will not introduce a new bureaucracy, but will be part of a continued commitment to fund money into patient care, not into bureaucracy?

Mr. Dobson: It is certainly the case that primary care groups will reduce the amount of money spent on the paperwork of transactions between primary care and hospitals, and that the previous Government had earmarked £20 million to be spent simply on the paperwork of the eighth wave of fundholding. We stopped that, and £10 million went to better breast cancer services and £5 million to improving children's intensive care. I am sure that, apart from a few witless loons on the Conservative Benches, everyone in the country thinks that that is right.

Mr. Shaun Woodward: While the Secretary of State remains concerned about targets, he will be aware that hospitals up and down the country face closure. In my constituency, we have three community hospitals: Burford faces the certainty of closure, Witney faces the closure of 25 per cent. of its beds, and Chipping Norton will lose beds too, yet all have an occupancy rate of more than 90 per cent. The hon. Gentleman knows that Oxfordshire community health council has decided to refer to him the absurd proposals for closures and bed cutting that have been put forward by the community health trust because of his failure to supply enough money. Will he guarantee the people of west Oxfordshire that he will save Burford hospital from closure, and save the beds that are due to close at Witney hospital?

Mr. Dobson: I cannot offer any such guarantees at the Dispatch Box. As Conservative Members who still have fading memories of being in government may recall, it is proper for me to comment in detail on proposals that come before me only after I have considered all the detailed information. Otherwise, any decision that I made could be challenged in the courts. The Government have put £2 billion extra into the NHS, over and above what the Tories had put into the budget for last year and this year—£2 billion more than they had intended to spend, and £1 billion more than the Liberal Democrats promised to spend.

Mr. Hilton Dawson: What scrutiny is my right hon. Friend giving to the pioneering effort across Morecambe Bay acute health trusts and Morecambe Bay community health trust in order to develop services across a wide area, and to cut the ludicrous bureaucratic costs inflicted on us by the previous Government? While I am on my foot, will he commend the sterling work of the accident and emergency department at the Royal Lancaster infirmary and look into giving the nurses more pay?

Mr. Dobson: I pay tribute to all the work that is being done in the Morecambe bay area. By amalgamating four trusts, we are saving a huge amount in bureaucratic costs. That money will now be better spent on patient care, which is what people in the Morecambe bay area want.

Drugs Budgets

Dr. Jenny Tonge: What plans he has to ensure that capping drugs budgets in primary care groups does not give rise to rationing by GPs. [46609]

The Minister of State, Department of Health (Mr. Alan Milburn): No individual element of the unified budget will be artificially capped. Health authorities and their primary care groups will continue to develop a range of measures to encourage general practitioners to use cost-effective and rational prescribing. As now, no one will be denied the drugs that they need. That is a guarantee.

Dr. Tonge: I am a little disturbed that, on two occasions in the Chamber this afternoon—the first was the response to my hon. Friend the Member for Northavon (Mr. Webb)—the Minister has suggested that institutes of clinical excellence should set priorities. He is now asking GPs in health authorities to set priorities within their identified budgets. All that I can say is that we heard it in the House first, rather than from the newspapers. This health team is now actively considering setting priorities, or introducing rationing, into the health service.
Is the Minister happy with his total cave-in to the British Medical Association, in that primary health care trust boards will consist of seven GPs, one nurse, one social worker and one lay member? Does not that breach the national health service's standing orders on professional representation? How on earth does the Minister think that he will get seven GPs in the same room agreeing with one another at the same time?

Mr. Milburn: GPs have already been doing that in recent years, and they will continue to do it. The local medical committees conference voted overwhelmingly for it. We have now given GPs and nurses more power and leverage than they have ever had before in the national health service. I am surprised that the hon. Lady does not welcome that.

Mrs. Angela Browning: The Minister will know that he replied to me in a written answer about the licensing and prescription of the drug Viagra. May I convey to him today the concerns of GPs in my constituency, who have asked me to draw to his attention the fact that if the new drug, for which no provision is currently made in the drugs budgets, is made available under NHS prescription, it should be available on clinical need only through hospitals, not through GP practices? GPs are very concerned about their drugs' budgets.

Mr. Milburn: Yes.

Hospital Waiting Lists

Mr. Dennis Skinner: When he expects there to be a downturn in hospital waiting lists; and if he will make a statement. [46610]

The Secretary of State for Health (Mr. Frank Dobson): The evidence is that today, as we are speaking, hospital waiting lists are coming down. Early indications

from the NHS executive show that waiting lists stopped rising in May and have been coming down in June: the supertanker has turned. I am confident that that will be confirmed when the validated figures are published in August. The Government intend to ensure that the waiting lists keep coming down.

Mr. Skinner: That is wonderful news, especially as it was not even a planted question—I showed great perception when I tabled the question a fortnight ago. Does my right hon. Friend agree that, as a testament to the health service that we have been discussing in the past 45 minutes, we should ensure that, having built it, we now rebuild it for the next century after the destruction caused during the past 18 Tory years? That will need a lot more money, and my right hon. Friend has asked for more money in the past from the Chancellor of the Exchequer and from the Prime Minister. We shall need at least £12 billion between now and the next general election to ensure that the promises that we made last time will be carried out, and that the Tories will be sent packing.

Mr. Dobson: I am sure that no one would have dared suggest that my hon. Friend had tabled a planted question. If I may say so without embarrassing him, I cannot think of anyone for whom I would rather have provided that reply. I shall bear his point in mind. When we compare ourselves with the people who founded the national health service 50 years ago, we should remember that they founded it on an act of faith. They hoped it would work; we know it works.

Miss Ann Widdecombe: We congratulate the national health service, which is why the Opposition Front-Bench team are proud to wear their badges. That view does not seem to be shared by the Secretary of State or the Minister of State. May I invite the Secretary of State to ask his hon. Friend the Member for Bolsover (Mr. Skinner) to congratulate the previous Conservative Government, who built the Bolsover community hospital, which I assume his constituents use, and the nearby Chesterfield and North Derbyshire Royal hospital, which is a large, successful hospital that his constituents also use? We built those hospitals.
May I turn to the right hon. Gentleman's rather hopeful answer, although he did admit that it was not based on any firm statistics? Have not the Government merely taken the first step towards getting the lists down to the level they inherited from us and away from their own record levels? Waiting lists are not coming down; under this Government, they have been going up to record levels, and the Government admit that it will take them half a Parliament just to get them down to the levels that we left them with.

Mr. Dobson: The right hon. Lady may expect my hon. Friend the Member for Bolsover (Mr. Skinner) to congratulate the Tory Government, but probably the only thing he would congratulate them on is being so useless that they lost the last election by the biggest landslide in the 20th century. The right hon. Lady would like the waiting lists to continue to rise, because that would be to the political advantage of the Tory party, but they are coming down.

Miss Widdecombe: The right hon. Gentleman has not entirely answered my question. Is this not just the first


predicted, not even guaranteed, step towards getting waiting lists down to the level at which we left them? Will he also please tell us how the waiting lists for the waiting lists are doing? Why is he refusing to publish information about waiting times for out-patient appointments as requested by my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond)? Will he tell us about rationing, which has meant that four minor operations are no longer available anywhere in the country on the national health service? Is that also a means of getting waiting lists down?
When he has answered my questions—I say this in great hope, because it is more likely that his hon. Friend the Member for Bolsover (Mr. Skinner) would congratulate us than it is that the Secretary of State would answer a question—will he guarantee that at this moment, no other area in the NHS is suffering as a result of his concentration on the failed delivery of his early pledge?

Mr. Dobson: I do not know how the right hon. Lady understands the concept of movement. If waiting lists were rising and are now coming down, I think it fairly obvious that that constitutes a first step—like, perhaps, the first step taken by the people who used to escape from prison when the right hon. Lady was Minister with responsibility for prisons.
Any journey has to begin with a first step, and this is that first step. I am not pretending that it is the second step, or the third step; but I am promising that there will be more steps, and that they will mean that waiting lists come down.

Miss Widdecombe: May I have the answers to my questions about the waiting lists for waiting lists, the waiting times for out-patient appointments, rationing whereby minor operations are no longer available and the fact that other parts of the NHS are suffering as a result of concentration? May I have those answers, please?

Mr. Dobson: We publish exactly the same information as was published by the last Government throughout the 18 years during which they were in office. They did not publish information about the length of time for which people were waiting for out-patient appointments, and we have not started to do so, although it is possible we shall.
If the right hon. Lady believes that certain people are being denied operations to which they are clinically entitled, will she give me the details? I will then follow up the information, and ensure that the people concerned have those operations. Will the right hon. Lady do that, instead of just making cheapskate remarks over the Dispatch Box?

Drug Misuse Services

Helen Jones: What assessment has been made by his Department of the extent of the link between money invested in drug misuse treatment and money saved from the cost of crime. [46611]

The Minister for Public Health (Ms Tessa Jowell): The benefits of treatment, and the reduction of crime as a result, have been clearly established by the national treatment outcome research study. It concluded that for every £1 spent on drug treatment, £3 of the costs of crime

was saved. Prevention is a key part of the Government's strategy to tackle drug abuse and protect communities from its awful consequences.

Helen Jones: I thank my hon. Friend for her reply. Is she aware of the very different views on the link between crime and drug misuse held by the hon. Member for Rutland and Melton (Mr. Duncan), who, in his book "Saturn's Children", called for the legalisation of the distribution and consumption of hard drugs? What would be her Department's response should the shadow Health Minister call for the legalisation of crack, smack and Ecstasy?

Ms Jowell: My hon. Friend raises an important question. We know that the views of the hon. Member for Rutland and Melton (Mr. Duncan) were set out very fully in the first edition of his book, but the House is entitled to know also whether, since he has changed the chapter concerned and given an undertaking to the leader of his party, he has also changed his mind about these matters.

Mrs. Ann Winterton: If the Minister has any questions about the Opposition's policy on the drugs strategy, she ought to ask me. My hon. Friend the Member for Rutland and Melton (Mr. Duncan) follows my policy.
Is the Minister aware of research undertaken in America, which shows that money spent on drug detoxification and rehabilitation programmes provides excellent value? What new money is the Department providing for such programmes in order to bring down the waiting lists and waiting times that are growing day by day?

Ms Jowell: The hon. Lady has come to the rescue of the hon. Member for Rutland and Melton, who stayed in his seat rather than answer questions from the Front Bench.
The hon. Lady is right: detoxification can be a highly effective part of getting people off drugs. We are determined to invest in treatments that are effective, and announcements about spending on treatments for drugs will be made in the course of the comprehensive spending review that is due shortly.

Breast Cancer Treatment

Mr. Eric Martlew: What steps he is taking to improve access to breast cancer treatment. [46612]

The Parliamentary Under-Secretary of State for Health (Mr. Paul Boateng): We have made £10 million available for breast cancer services, which is being used to support more than 300 initiatives throughout the country. Particular emphasis has been given to supporting projects that give rapid access to diagnostic services.
Our White Paper sets out a specific target that everyone with suspected cancer will be able to see a specialist within two weeks of urgent referral. That has been guaranteed for breast cancer by April 1999.

Mr. Martlew: I thank the Minister for that and the £140,000 that has been put into Cumbria since October. The Minister may be aware that we have a local difficulty in Carlisle—people who are picked up on the screening


system cannot be treated at the Cumberland infirmary. If he is not aware of that, later this week, I will be giving him a 14,000-name petition on the matter, collected by the women of Carlisle.
It would be unfair for the Minister to respond to that matter today because an expert panel is looking into it, but can we look at the scheme nationally and locally? It is for women aged between 50 and 65. There is much concern among women who are over 65 and outside the scheme. When I talk to medical experts and doctors, they say that there is no medical reason for their exclusion. Will the Minister review that policy and, in the meantime,

will he give an assurance to those women over 65 that, if they wish to continue to be screened, they will be accommodated by the NHS?

Mr. Boateng: I can give that assurance. We have a number of pilot projects that are looking specifically at the issue of automatic call-back for screening for women over 65, and we will consider the results of those pilot projects in due course. The national programme co-ordinator is, I understand, giving advice to interested parties in his constituency about the screening service for women in Cumbria and I welcome my hon. Friend's interest in and concern about that matter.

Points of Order

Mr. Michael Howard: On a point of order, Madam Speaker. I know that you will be aware that very many questions have been tabled to the Foreign Secretary and other Ministers on the involvement of Sandline International in the supply of arms to Sierra Leone. Ministers have refused to answer those questions on the ground that they came within the scope of the Legg inquiry, which they have said they do not wish to prejudge.
This morning, the Foreign Secretary wrote to the Chairman of the Foreign Affairs Select Committee a letter that contains the following two sentences:
There was no ministerial conspiracy to breach the arms embargo. There was no connivance within Whitehall to breach the arms embargo.
Those assertions not so much prejudge as entirely pre-empt questions that lie at the heart of the Legg inquiry. Will you now give an indication of your views, in the light of the Foreign Secretary's letter, on the propriety of Ministers refusing to answer questions in the way I have identified?

Madam Speaker: As the right hon. and learned Gentleman will appreciate, it is not for me to comment on answers to questions that are given by Ministers. I must also make it clear that, unless a matter is reported to me by the Chairman of a Select Committee, I do not propose to alter the long-standing practice of not commenting from the Chair on the proceedings of Select Committees. The matter must be reported to me in the first place by a Chairman of a Committee before I make any statement or any comment about it.

Mrs. Jacqui Lait: On a point of order, Madam Speaker. I am most grateful to you. Can you give me some guidance? It was obvious to me that the Secretary of State for Health was not aware that the NHS organisation Health Services Accreditation was being disposed of. There are concerns about the process of that disposal. Can you give me some guidance on how he could come to the Chamber and publicly give me some advice on the disposal of Health Services Accreditation?

Madam Speaker: I think that the hon. Lady is attempting to prolong health questions. Perhaps she might care to table a further question to the Secretary of State for Health, or refer the matter to his attention by means of an early-day motion.

Unsolicited Facsimile Messages

Mr. Christopher Fraser: I beg to move,
That leave be given to bring in a Bill to prohibit the sending of facsimile messages offering for sale goods or services or seeking answers by questionnaire without prior permission of the recipient.
Increasing numbers of people find it convenient to have a fax telephone machine at home. Almost without exception, small businesses use a fax machine to conduct their day-to-day business in what they expect to be a cost-effective and convenient manner.
Home users and businesses alike are being plagued by unwanted facsimile messages which use up paper, tie up telephone lines and arrive at all hours of the day and night. I have had many letters from my constituents and from colleagues whose constituents are receiving such facsimiles, asking how to put a stop to this invasion of their privacy. They are dismayed to learn that the solution, if it works, may cost them yet more money.
Fax marketing has increased hugely in recent months. Organisations have been carrying out automatic number searches in order to identify fax numbers and compile lists. The Office of Telecommunications—Oftel—is taking action against those who have adopted that practice, but vast lists already exist which include many ex-directory residential numbers. Those lists are clearly being used extensively.
Constituents have provided me with examples of goods and services that they have been offered. They are numerous and come in many forms. They cover everything from supplies of a recently identified wonder drug, world cup tickets, miracle diets and discount air fares to how to win the national lottery or buck the stock market, from debt collection services to questionnaires on this country's future in Europe and the registration of paedophiles, and highly distasteful joke faxes.
I have also received complaints from constituents about unsolicited telephone calls and junk mail and about the growing problem of junk e-mails, but I have chosen to deal today only with the nuisance of unsolicited facsimile messages rather than with all distance-selling practices, and I do so for several reasons. Most important, unlike junk mail or telephone calls, an unsolicited fax involves a cost to the recipient by way of paper, toner or ribbon and electricity. Junk faxes are expensive to receive. However irritating, junk mail and telephone calls cost the recipient nothing.
Junk messages tend to be sent in the middle of the night and wake the domestic user who has a phone by the bed. Unsolicited telephone selling usually takes place during the day or early evening and, though inconvenient, is less intrusive. The receipt of a lengthy fax ties up telephone lines, causing inconvenience and irritation, especially when long messages of a business nature are sent to domestic users or to a small business that needs access to what may be a limited number of telephone lines.
The content of some messages is of an undesirable or offensive nature—not something I should wish young people or children to see. Junk mail can be thrown away intact with its contents never read.
At the moment, we have an opt-out regime for marketing faxes. The fax preference service, established by the Direct Marketing Association, has reduced the


number of unsolicited residential faxes received, but it remains legal for a company to send a fax to a registered number against the wishes of the recipient. Many constituents who are registered with the fax preference service continue to receive messages. They see that as adding insult to injury. The service is, of course, aimed at home users rather than business users. A business can register under the scheme, but there is no obligation for marketing companies to cross-check and remove such numbers from their lists.
As the House will know, the Telecommunications Act 1984 requires anyone running a telecommunications system in the United Kingdom to do so under licence. Companies using fax marketing are subject to a class of licence that contains measures aimed at limiting the nuisance caused by unsolicited calls by requiring callers to cease making such calls on receipt of a written request from the recipient. Oftel can then be requested to intervene in order to enforce the rules if the company continues to transmit messages. In serious cases, a licence can be revoked.
Unsolicited facsimile messages that promote premium-rate telephone services are also governed by a code of practice issued by ICSTIS, the Independent Committee for the Supervision of Standards of Telephone Information Services.
ICSTIS tells me that it has become apparent that many customer complaints about unsolicited faxes relate to those promoting premium-rate numbers, and that, over the past year or so, such complaints have risen sharply. Examples of the type of messages generating a complaint to ICSTIS are similar to those that I have already cited, and include faxes soliciting information to compile business information directories; fax-back questionnaires; and faxes promoting other so-called joke faxes.
ICSTIS continues to take action against companies whose services breach its code, which sets standards on content, and has recently banned one company whose series of joke faxes were deemed to be offensive and inappropriate.
Before the proliferation of fax marketing, the combined approach that I have outlined—enforced by Oftel and ICSTIS—may well have offered adequate protection to my constituents and others. However, I now share my constituents' view that that approach is unsatisfactory. The quantity and content of messages coming into our homes and businesses make them a genuine concern. They represent the thin end of the wedge. If we do not act now to address a relatively simple issue and so draw a line in the sand, how can we expect to regulate as information technology moves forward and access to the internet and e-mail become as commonplace as we all expect them to do?
The current regulation system is no longer adequate. Numerous companies are sending unsolicited faxes, and each company must individually receive a letter requesting that it desist from doing so. Marketing companies make it clear that unstamped post will be returned, so the cost of each envelope and postage has to be borne by each recipient. It is possible to calculate the cost of receiving one fax and requesting the sender to remove a number from its list. However, it adds up to a significant sum when that cost is multiplied several times to cover the cost of all the faxes received in one week. Only last week, one of my constituents received seven such faxes.
The European Union distance selling directive and telecommunications data protection directive—which go some way to dealing with the problem of unwanted fax messages—are in the process of being adopted. However, they will leave it to member states to choose between a prior consent regime and an opt-out regime. The Government have not announced how they will proceed on the issue.
We must not allow our constituents to continue to be pestered. Unsolicited faxes are costing them sleep and considerable sums, and are causing immense frustration and annoyance. The solution could be very simple—the onus must be placed on the person sending the fax and not on the one receiving it. We will overcome some of the problems that I have described by requiring a company or individual wishing to transmit multiple advertising faxes or fax-back questionnaires first to seek prior consent from the proposed recipient.
Such a Bill will, of course, need careful and detailed drafting to avoid unnecessary bureaucracy. My Bill may make the process cumbersome and expensive for marketing companies, although marketing companies may think that that price is worth paying. Most important, my Bill would restore control of fax machines to their users. I urge the House to support it.

Question put and agreed to.

Bill ordered to be brought in by Mr. Christopher Fraser, Mr. David Atkinson, Mrs. Angela Browning, Mr. Geoffrey Clifton-Brown, Mr. James Gray, Mr. Dominic Grieve, Mrs. Eleanor Laing, Dr. Julian Lewis, Mr. Owen Paterson, Mr. David Ruffley, Mr. Desmond Swayne and Mr. Robert Walter.

UNSOLICITED FACSIMILE MESSAGES

Mr. Christopher Fraser accordingly presented a Bill to prohibit the sending of facsimile messages offering for sale goods or services or seeking answers by questionnaire without prior permission of the recipient: And the same was read the First time; and ordered to be read a Second time on Friday 3 July, and to be printed [Bill 215].

FINANCE (No. 2) BILL [WAYS AND MEANS]

Resolved,
That provision may be made in the Finance (No. 2) Bill for and in connection with restricting relief under sections 95(3) and 97(4) of the Finance Act 1986.—[Mr. Robert Ainsworth.]

FINANCE (NO. 2) BILL [WAYS AND MEANS]

Resolved,
That provision may be made in the Finance (No. 2) Bill—

(a) amending section 22A of the Capital Allowances Act 1990;
(b) repealing section 76(3) of that Act.—[Mr. Robert Ainsworth.]

Orders of the Day — Finance (No. 2) Bill

Not amended in Committee and as amended in the Standing Committee, considered.

New clause 13

DEPOSITARY RECEIPTS AND CLEARANCE SERVICES: EXCHANGES OF SHARES

'.—(1) In section 95 of the Finance Act 1986 (depositary receipts: exceptions) in subsection (3) (exchanges) after paragraph (b) there shall be added—

"and the shares in company Y are held under a depositary receipt scheme."

(2) At the end of that section there shall be added—

"(5) For the purposes of subsection (3) above, the cases where shares are held under a depositary receipt scheme are those cases where, in pursuance of an arrangement,—

(a) a depositary receipt for chargeable securities has been, or is to be, issued by a person falling within section 93(2) above in respect of the shares in question or shares of the same kind and amount; and
(b) the shares in question are held by that person, or by a person whose business is or includes holding chargeable securities as nominee or agent for that person, towards the eventual satisfaction of the entitlement of the receipt's holder to receive chargeable securities.

(6) Where an arrangement is entered into under which—

(a) shares in a company (company X) are issued to persons in respect of their holdings of shares in another company (company Y), and
(b) the shares in company Y are cancelled, the issue shall be treated for the purposes of subsection (3) above as an issue by company X in exchange for the shares in company Y.

(7) In this section "depositary receipt for chargeable securities" has the same meaning as in section 93 above (see section 94 above)."

(3) In section 97 of the Finance Act 1986 (clearance services: exceptions) in subsection (4) (exchanges) after paragraph (b) there shall be added—

"and the shares in company Y are held under a clearance services scheme."

(4) At the end of that section there shall be added—

"(6) For the purposes of subsection (4) above, the cases where shares are held under a clearance services scheme are those cases where—

(a) an arrangement falling within paragraph (a) of subsection (1) of section 96 above has been entered into; and
(b) in pursuance of that arrangement, the shares are held by the person referred to in that paragraph as A or by a person whose business is or includes holding chargeable securities as nominee for that person.

(7) Where an arrangement is entered into under which—

(a) shares in a company (company X) are issued to persons in respect of their holdings of shares in another company (company Y), and
(b) the shares in company Y are cancelled, the issue shall be treated for the purposes of subsection (4) above as an issue by company X in exchange for the shares in company Y."

(5) In section 99(10) of the Finance Act 16 (which makes provision in relation to the interpretation of "chargeable securities" in sections 93, 94, 96 and 97A)—

(a) after "94," there shall be inserted "95,"; and

(b) after "96" there shall be inserted ", 97".

(6) This section applies where the issue by company X referred to in section 95(3) or (6) or 97(4) or (7) of the Finance Act 1986 is an issue on or after 1st May 1998.—[Mr. Geoffrey Robinson.]

Brought up, and read the First time.

The Paymaster General (Mr. Geoffrey Robinson): I beg to move, That the clause be read a Second time.
The clause makes two changes to the scope of the relief from stamp duty reserve tax, known as SDRT, when there is an exchange of shares held in a depositary receipt scheme or a clearance service. SDRT on share transfers is usually charged at 0.5 per cent., but the rate is 1.5 per cent. when United Kingdom shares are issued or transferred into a depositary receipt scheme. The higher rate is a kind of season ticket charge. It reflects the fact that transfers of depositary receipts within the scheme will not be liable to the tax. There are similar rules for clearance services.
There is a relief from the 1.5 per cent. charge when there is an exchange of shares in a takeover or merger. For example, when company X takes over company Y, there is no 1.5 per cent. charge on the shares that company X issues into the depositary receipt scheme in exchange for the existing shares in company Y. Normally, 1.5 per cent. tax will already have been paid when the existing shares in company Y entered into the scheme in the first place. The aim of the relief is to prevent a second 1.5 per cent. charge from being levied merely because new shares are being issued in exchange for the existing ones.
The new clause deals with two points. First, the Inland Revenue has received legal advice that the relief works more narrowly than the way in which it has been applied because, in this context, the meaning of exchange is confined to cases where company X issues shares to company Y shareholders in exchange for the existing company Y shares. In practice, there are also cases where the existing company Y shares are cancelled and new company Y shares are issued to company X in return for the issue of new shares in company X to company Y shareholders. Until the receipt of the legal advice, such cases were also considered to be within the scope of the relief. The new clause will enable them to continue to qualify for relief.
Secondly, the new clause will restrict the relief in certain cases where it may be available, but is not justified because there is no double charge to be relieved. In such cases, no 1.5 per cent. charge has been paid on the existing shares in the target company Y because they were outside the scope of the charge. A particular example is where company Y is a foreign company because the 1.5 per cent. charge applies only to shares in UK companies. Under the new provision, the issue of new shares will qualify for relief only if the existing shares in the target company Y are chargeable securities within the scope of the 1.5 per cent. charge.
I hope that hon. Members will agree that the new clause makes desirable changes to the current rules, and I commend it to the House.

Mr. David Heathcoat-Amory: In general, the House should disapprove of the Government introducing provisions at an extremely late stage to remedy deficiencies in legislation, especially as they have had


more than a year to address such problems and correct them. The House is being invited to accept a new clause to the Finance Bill, which is not only being presented at a late stage, but requires a ways and means resolution; it is a most unusual procedure which should be reserved for special circumstances.
We have no quarrel with the substance of the new clause, as it is a relieving measure aimed at correcting a deficiency. Our complaint is that the Government looked closely at stamp duty when they were drawing up the Budget. We know that, because they used it as one of their back-door tax-raising measures. Stamp duty was increased by £500 million a year. That will be the total burden on businesses and householders when the provisions take full effect. The Chancellor, quite misleadingly, suggested in his Budget speech that the burden would be borne entirely by rich householders, when 75 per cent. of it will be borne by the corporate sector.

Mr. John Bercow: Does my right hon. Friend agree that irritation at the Government's hurried presentation of the new clause is compounded by the fact that the Paymaster General has not thought it proper to give the House any assurance that none of his own business interests is affected either way by the proposed new clause?

Mr. Heathcoat-Amory: We must await an assurance from the Paymaster General that his many interests have been properly declared. The stamp duty provisions will bear down heavily on the corporate sector. My hon. Friend would like to know whether that will affect the Paymaster General's business interests.
The Conservatives want to protect the interests of corporate Britain, which is suffering grievously from a succession of tax rises. That is why investment is due to fall next year and the year after, according to the Government's figures, and why unemployment could start to rise. The last thing that business wanted or expected was a heavy burden from a dramatic 50 per cent. increase in the upper rate of stamp duty.
It is a pity that the Government did not take sufficient trouble to spot the problems that they are creating with their tax policies. The Financial Secretary wrote to alert me to the new clause, but the letter is dated only yesterday. It is most regrettable that we have to digest, comment on and scrutinise complicated measures with only a day's notice, when the Government have had many months to prepare their Budget and the Bill.
When did the Inland Revenue receive the legal advice? Could the matter not have been dealt with in a more timely fashion to give the House a better opportunity to scrutinise the provision?

Mr. Edward Davey: Part of the new clause extends the relief, to ensure that it operates as intended. As the right hon. Member for Wells (Mr. Heathcoat-Amory) said, that is welcome. However, the Government have taken the opportunity of reacting to the legal advice to introduce a restriction on the relief that will affect some mergers in which one company is foreign, as the Paymaster General said. The restriction will have little effect on Exchequer revenues, but it will damage the corporate sector by affecting tax calculations

for mergers and will result in the holding company relating to some mergers being located outside the United Kingdom. At the moment, the tax incentive is for the holding company to be in the UK.
We benefit from having such holding companies in this country. They bring extra tax to the Exchequer, they employ people and there are spin-off benefits. Any measure that restricts the incentive to locate in the UK must have significant and overriding grounds for being introduced. The Paymaster General did not make that case when introducing the new clause. I hope that he will come up with some stronger arguments when he replies.

Mr. Geoffrey Robinson: The problem emerged just before the Budget. We received the legal judgment only very recently. This is a relieving measure which companies and industry clearly want. We have done well to respond so quickly. In seeking the co-operation of the Opposition to facilitate the measure, we are acting in the best interests of British companies.
The hon. Member for Kingston and Surbiton (Mr. Davey) raised a separate point. I think that he is probably referring to the correspondence between Mr. George Ritchie of Deloitte and Touche, and my hon. Friend the Financial Secretary. We have acknowledged that there could be a problem, particularly with a UK company acquiring a United States one. Many other factors are taken into account in such situations—not just tax, but the tremendous advantages for holding companies in the UK. Those advantages have been considerably enhanced following the abolition of advance corporation tax, and there has been a problem with foreign income dividend streams. Billiton—a massive South African group—chose the UK, on balance, for those reasons. It was a reasoned correspondence with Mr. Ritchie.
The measure has been introduced not purely on financial grounds, but on the principled basis that the tax should be paid, but not double paid—we are making that specific relief. There must be a compelling reason for the tax not to be paid. We will keep the situation under review and see what develops.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 14

FIRST-YEAR ALLOWANCES FOR INVESTMENT IN NORTHERN IRELAND

'.—(1) In section 22 of the Capital Allowances Act 1990 (first-year allowances), after subsection (3C) there shall be inserted the following subsections—

"(3CA) Subject to the provisions of this Part, this section applies to—

(a) any expenditure incurred in the special relief period by a small company or a small business on the provision of machinery or plant for use primarily in Northern Ireland; and
(b) any additional VAT liability incurred in respect of expenditure to which this section applies by virtue of paragraph (a) above.

(3CB) For the purposes of subsection (3CA) above expenditure is incurred in the special relief period if, disregarding any effect of section 83(2) on the time at which it is to be treated as incurred, it is incurred in the period beginning with 12th May 1998 and ending with 11th May 2002.

(3CC) Expenditure is not expenditure to which this section applies by virtue of subsection (3CA) above in so far as it is—

(a) expenditure to which Chapter IVA applies; or
(b) expenditure on the provision of an aircraft or hovercraft."

(2) After subsection (6C) of that section there shall be inserted the following subsections—

"(6D) Expenditure incurred on the provision of machinery or plant shall not be taken to be expenditure to which this section applies by virtue of subsection (3CA) above if—

(a) at the time when the expenditure is incurred, the person incurring it intends the machinery or plant to be used partly outside Northern Ireland; and
(b) the main benefit, or one of the main benefits, which could reasonably be expected to arise from the relevant arrangements is the obtaining of a first-year allowance, or a greater first-year allowance, in respect of the part of the expenditure that is attributable to the intended outside use.

(6E) In subsection (6D) above—

(a) 'the relevant arrangements' means the transaction under which the expenditure is incurred and any scheme or arrangements of which that transaction forms part;
(b) 'the intended outside use' means so much of the use of the machinery or plant as (at the time mentioned in paragraph (a) of that subsection) the person intends will be use outside Northern Ireland; and
(c) the reference to the part of the expenditure that is attributable to that use is a reference to so much of the expenditure in question as is so attributable on a just and reasonable basis."

(3) In subsection (10) of that section after "this section—" there shall be inserted—

"'hovercraft' has the same meaning as in the Hovercraft Act 1968."

(4) After section 22A of that Act there shall be inserted the following section—

"Withdrawal of first year allowance on change of use

22B.—(l) Where (hut for this section) section 22 would apply to any expenditure by virtue of subsection (3CA) of that section, that section shall be deemed never to have so applied to that expenditure if, at any relevant time—

(a) the primary use to which the machinery or plant is put is a use outside Northern Ireland; or
(b) the machinery or plant is held for use otherwise than primarily in Northern Ireland.

(2) In subsection (1) above 'a relevant time', in relation to any expenditure, means a time which—

(a) falls in the period of two years beginning with the date of the incurring of that expenditure; and
(b) is a time when the machinery or plant belongs to the person who incurred the expenditure or to a person who (within the terms of section 839 of the principal Act) is, or at any time in that period has been, connected with the person who incurred the expenditure.

(3) All such assessments and adjustments of assessments shall be made as may be necessary in consequence of this section.

(4) Where a person who has made a return becomes aware that anything contained in that return has, after the making of the return, become incorrect by reason of the operation of this section, he shall, within three months of first becoming so aware, give notice to an officer of the Board of the amendments that are necessitated in his return in the light of the matter of which he has become aware."

(5) In the second column of the Table in section 98 of the Taxes Management Act 1970 (penalties in respect of certain information provisions), in the entry relating to provisions of the Capital Allowances Act 1990, after "Sections" there shall be inserted "22B(4),".

(6) Subject to subsection (7) below, the preceding provisions of this section have effect in relation to every chargeable period ending on or after 12th May 1998.

(7) No claim for an allowance falling to be made by virtue of subsection (1) above may be made at any time before such date as the Treasury may by order appoint; and where the period for making any such claim would (but for this subsection) have expired before the end of the period of twelve months beginning with that date, it shall expire, instead, at the end of that period of twelve months.'.—[Mr. Geoffrey Robinson.]

Brought up, and read the First time.

Mr. Geoffrey Robinson: I beg to move, That the clause be read a Second time.

Madam Speaker: With this, it will be convenient to discuss the following: Government new clause 15—First-year allowances: consequential amendments etc.
Government amendments Nos. 25 to 28.

Mr. Robinson: The new clause is part of a package of measures announced by my right hon. Friend the Chancellor on 12 May aimed at creating a new framework of prosperity in Northern Ireland. That package included a varied range of measures covering areas such as employment, transport, education, housing, agriculture, tourism and innovation, as well as this special measure to assist small and medium-sized businesses.
Under the clause, during the four years starting from 12 May this year, expenditure on machinery or plant incurred by a small or medium-sized business for use in Northern Ireland will be eligible for a 100 per cent. first-year capital allowance. In other words, such expenditure may be written off for tax purposes in full straight away. That extra help to speed up investment for the rest of this Parliament represents a £100 million cash flow boost to smaller business in Northern Ireland.
As the House knows, some 99 per cent. of businesses in Northern Ireland are small and medium-sized businesses, including many in the tourism and service industry sectors. The new first-year allowances will therefore be available to a large number and wide range of businesses across Northern Ireland. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New clause 15

FIRST-YEAR ALLOWANCES: CONSEQUENTIAL AMENDMENTS ETC.

'.—(1) In each of subsections (4), (6B) and (6C) of section 22 of the Capital Allowances Act 1990 (first-year allowances), for "subsection (3C)" there shall be substituted "one or more of subsections (3C), (3CA) and (3D)".

(2) In section 22A of that Act (expenditure of a small company or small business)—

(a) in subsection (4), for the words "parent company", wherever they occur, there shall be substituted "parent undertaking"; and


(b) in subsection (6), for "'parent company"' there shall be substituted "'parent undertaking"'.

(3) In subsection (8) of that section, after paragraph (b) there shall be inserted—

"but for the purposes of this section each of those provisions shall be construed as if references, in relation to a group, to the parent company were references to the parent undertaking."

(4) In sections 23(6), 42(9) and 50(3) and (4A) of that Act (which contain provisions relating to the temporary first-year allowances under section 22(3B) and (3C) of that Act), for the words "subsection (3B) or (3C)", in each place where they occur, there shall be substituted "one or more of subsections (3B), (3C), (3CA) and (3D)".

(5) In sections 44(5), 46(8) and 48(7) of that Act (which also contain provisions relating to the temporary first-year allowances under section 22(3B) and (3C) of that Act), for the words "or (3C)", in each place where they occur, there shall be substituted ", (3C), (3CA) or (3D)".

(6) In section 39(2)(a) of that Act (definition of qualifying purpose), for "subsections (2) to (3C)" there shall be substituted "subsections (2) to (3D)".

(7) In section 43(5) of that Act (provisions relating to joint lessees in cases involving new expenditure), after "(3C)" there shall be inserted ", (3CA) or (3D)".

(8) In section 76 of that Act (which modifies the effect of section 75 in cases where machinery or plant has not been used before a sale)—

(a) subsection (3) shall cease to have effect; and
(b) in subsection (4), for ", (2B) and (3)" there shall be substituted "and (2B)".

(9) Subsections (1) and (4) to (8) above have effect in relation to every chargeable period ending on or after 12th May 1998.

(10) Subject to subsection (11) below, subsections (2) and (3) above have effect in relation to expenditure incurred on or after 12th May 1998.

(11) Subsections (2) and (3) above do not have effect—

(a) for the purpose of determining whether any expenditure is expenditure to which section 22 of that Act applies by virtue of subsection (3C) of that section; or
(b) for the purpose of determining whether any expenditure incurred in pursuance of a contract entered into before 12th May 1998 is expenditure to which that Act applies by virtue of subsection (3D) of that section.'.—[Mr. Robert Ainsworth.]

Brought up, read the First and Second time, and added to the Bill.

New clause 1

REPAYMENT OF DIVIDEND TAX CREDIT TO NON-TAXPAYERS

'.—Section 30(5)(b) of the Finance (No. 2) Act 1997 shall cease to have effect.'.—[Mr. Fallon.]

Brought up, and read the First time.

Mr. Michael Fallon: I beg to move, That the clause be read a Second time.
New clause 1 is an attempt to put right an injustice that was raised in Committee. I pay tribute to my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) and to Age Concern, who have highlighted the issue. Very simply, before the abolition of dividend tax credits, non-taxpayers could claim back the tax credits up to 20 per cent. of the dividends that they received. From next April, they cannot.
These are, perhaps, relatively small amounts of money, but they are extremely significant for non-taxpayers who are pensioners. They may be pensioners on very low fixed

incomes of £4,000 or £5,000 a year who now stand to lose £100, £200 or £400—sums of that order. It is just dawning on those pensioners exactly what injustice they face.
Miss Geraldine Deery, from St. James road, Sevenoaks, came to see me at my surgery and pointed out that she is 76, has no occupational pension and is entirely dependent—apart from the state pension—on dividends from the investments that were made from the savings she had made from her salary. Next April, she stands to lose between £150 and £160 a year. After coming to see me, she wrote to me and said:
This may seem peanuts to Mr. Robinson but it pays, for example, for my one short annual holiday which is all I can afford after paying everyday household bills.
Mrs. Pendleton has also written to me, pointing out that the change does not affect the amount of tax paid by taxpayers. Anybody who has an income sufficient to pay tax will not, under this change, have to pay more tax. The only people to suffer under the change are pensioners who are too impoverished to pay tax at all. That seems a double injustice.
To be fair to the Paymaster General, when we raised the issue in Committee, he recognised the problem and undertook to pursue a solution. He was spurred on in that not only by my hon. Friends but by the hon. Member for Dudley, North (Mr. Cranston), who was also rightly concerned about the particular problem of pensioners on very low incomes and the injustice that they will face next April. I understand that, through the good offices of the Paymaster General, the matter was further considered last week. I hope that he will be able to report to the House, as he undertook to do, on the progress that he has made.
4 pm
It may be that the change was rushed through the House and was an inadvertent consequence of the speed with which last July's Finance Bill was considered, but no Member should be in any doubt about the consequences. Next April, around 300,000 pensioners, who, in the financial year 1995–96 claimed on average £75—in many cases, the sum was higher or lower—will lose that entire amount. In your constituency, Madam Speaker, about 400 pensioners will be affected. The change will affect about 400 pensioners in each constituency. They will soon be asking why that change was made and who authorised it. It is late in our deliberations on the Bill, but it is not too late for the Paymaster General to put right this injustice. In moving the new clause, we give him the opportunity to do so.

Mr. Edward Davey: I do not want to detain the House for too long because I know that many hon. Members want to speak on the new clause. I set out my views in Committee last July, and my party's views were reiterated by my hon. Friend the Member for Twickenham (Dr. Cable) in Committee this May. I, too, congratulate the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) on the way in which he has pursued the matter and the hon. Member for Dudley, North (Mr. Cranston), whose intervention in Committee was important in getting the Paymaster General to promise to reconsider the change.
We have come a long way since the Government's first Finance Bill last July, when the Economic Secretary had a much less flexible attitude to interventions by Liberal


Democrat and Conservative Members on this issue. I am glad that the Paymaster General was present in Committee to hear our argument, which is one of social justice. It is patently absurd that non-taxpayer pensioners, who are, by definition, the poorest pensioners in our society, should be singled out by the Government for tax increases that, as we have heard, average £75, but in some cases will be significantly higher.
As we have heard from the hon. Member for Sevenoaks (Mr. Fallon), more than 300,000 pensioners will be affected, which is more than 400 in every constituency. This is a major issue, and it is right that the House should be debating it.
We should remember that pensioners may have received shares not because they have been long-term investors in the stock market, but because they were made redundant or inherited them. They may have had a little flutter and bought privatisation shares issued under the previous Government. These pensioners will have received their shares not because they are sophisticated investors but by dint of happenstance and good luck. The dividend income from those shares makes a huge difference to their incomes. The average amount received, £75 a year, equates to one week's pension.
The Government's arguments in favour of the change were rehearsed many times in Committee, but have not stood up to analysis. Their main argument is that pensioners will be protected when individual savings accounts come in towards the end of the century. We have argued strongly against that defence; it is very clear to us that the pensioners affected may be infirm and may have real worries about dealing with complicated financial affairs. They are unlikely to read the financial press or to follow the Chancellor's every move so as to know when to switch their savings to the new ISAs. When they wake up in two or three years' time to the fact that their dividend credits have not been given to them, they will realise just how badly they have been affected.
The House should stand up for these unsophisticated savers and say no to the Government's proposals. These people deserve defending.

Mr. Ross Cranston: As the hon. Members for Sevenoaks (Mr. Fallon) and for Kingston and Surbiton (Mr. Davey) have mentioned, I raised this issue in Committee. I was especially concerned about the poorest pensioners—non-taxpaying pensioners—who might have received a small number of shares from employers or from a privatisation issue. The income from the shares gives them a small supplement to their basic pension.
Earlier this week, the Minister received a deputation comprising the hon. Members for Bognor Regis and Littlehampton (Mr. Gibb) and for Twickenham (Dr. Cable), two representatives from Age Concern and me. He gave us a sympathetic hearing and is fully aware of the problem. I realise that there may be technical reasons why my hon. Friend cannot accept the new clause today; I realise that there are difficulties with identifying the pensioners who will be worse off as a result of the changes. I should like the Minister to give the matter his closest attention even if he cannot announce any improvements today.

Mr. Nick Gibb: The issue goes back to last July's Budget, which prevented non-taxpayers from reclaiming dividend tax credits from the Inland Revenue. The new clause would undo the damage done then.
There are in this country 630,000 non-taxpayers who claim back some form of tax credit on their share income every year. They include children. Of the 630,000, 300,000 are non-tax-paying pensioners who claim an average £75 a year. Of that 300,000, 80,000 claim more than £100 a year—and many thousands claim much more than that.

Mr. Desmond Swayne: Although these sums are not significant to us, will my hon. Friend acknowledge that they certainly are significant to the elderly pensioners among our constituents—precisely the sort of people for whom the Labour party used to care?

Mr. Gibb: That is an important point. A non-taxpayer is, by definition, a person on a very low income. After the essential bills—rent, telephone, heat, food—have been paid, the residual income is even lower; so tax refunds on dividend income constitute a high proportion of such pensioners' disposable incomes. From April 1999, that will be removed from them.
The Exchequer will save about £50 million a year by the measure, but, even if it were to continue to allow people to reclaim their tax credit, the amount would be halved in April 1999 in any case, because the Finance (No. 2) Act 1997 reduced the tax credit from 20 to 10 per cent. As a result, even if the Government were to accept new clause 1, pensioners and other non-tax-paying individuals would suffer a halving of the tax credit on their dividends. Therefore, the cost to the Treasury of reversing this measure would be only about £25 million.
As it is, the Government are continuing the policy of tax-back, where non-tax-paying individuals can reclaim income tax deducted on interest income in bank accounts when the bank or building society deducts the interest at source. If the Government are continuing that scheme, it seems odd that they are not allowing pensioners, and other non-tax-paying individuals who have shares, to reclaim the tax back on that income. Age Concern, which has vigorously supported this campaign, has said:
Older people who have not had the opportunity to contribute to private pensions are particularly reliant on savings and investments. The loss of the tax credit will penalise them unfairly.
Every hon. Member has received considerable correspondence on the issue from constituents. I have had an especially large number of letters from constituents of other hon. Members throughout the country. One letter, from Mr. Geoffrey Pugh of Cheshire, was published in The Times at the beginning of June. He says that, between them, he and his wife have an income of less than £10,000. He continues:
we own our house, drive a car, live modestly…we do not qualify for Government handouts, nor do we wish to. But the prospect of losing 20 per cent. of our modest investment income makes us wonder how we shall manage.
I have received many letters from my constituents. Mr. Caffyn, who lives in Pagham, just outside Bognor Regis, says:
Apart from War Service, myself in the 8th Hussars, and my wife served as a Nurse, we have paid our taxes regularly through the media of PAYE, and to the National Pension fund…We have saved".


That is consistent with the statement by the hon. Member for Kingston and Surbiton (Mr. Davey) that it is not by luck that people have amassed a small share portfolio; they have saved hard. The letter continues:
now it appears we are going to lose 20 per cent. (that we have been claiming back over the last few years.)
'Gobbler' Brown (as he is beginning to be known in this area) really should get himself organised, and not expect people in the no tax bracket to pay tax.
The Treasury has received many letters on the issue. A gentleman from Cornwall says:
I have just received a payment from the Inland Revenue for £310 which under the new proposals would not be paid after April 99. I think this is grossly unfair when Standard rate taxpayers lose nothing.
A lady from South Wirral says:
I am a 70 year old widow and have only my late husband's National Insurance contributions for my pension, so rely on my investment for income.
This year I reclaimed £213.56 tax credit and still my income was less than the personal allowance. There must be many more pensioners in the same position.
Many thousands of pensioners are in that position.
A gentleman from Keighley in West Yorkshire said:
My wife aged 77 has received a small repayment of tax credit on her limited investments as she is a non-tax payer. Her retirement pension as a married woman is £38.70 per week…Last year she received a repayment of tax credits in the region of £250. As her annual pension amounts to only £2,012.40 this sum of £250 is a very welcome addition.
I am 81 years of age and the shares held by us jointly are the result of steps to save for our old age.
No luck in their share portfolio; they have worked hard for it, they have sacrificed and they have saved.
A lady in Nuneaton in Warwickshire wrote to me:
As a 'non taxpaying pensioner' partly dependent upon share dividends I really am disgusted at this proposal".
A lady in Harrogate in West Yorkshire says:
My own income, together with interest from investments and savings, amounts to the total 1997/98 allowance of £5,400…I have been able to reclaim £473
on a dividend tax credit. The lady continues:
The interest on Investments and Savings are the result of careful planning, modest living standards, and wise investments, and represents a 'private pension' built up over many years.
I am appalled to think that the Government is prepared to penalise senior citizens to this extent when we ourselves have done everything possible to protect ourselves from the demands old age can bring.
A gentleman in Ruislip in Middlesex writes:
The wife and I stand to lose £500. When almost every day we read of certain spendings of tax on wallpaper, tables and a certain gentleman that forgets a £200,000 fee.
I have no idea what the last point refers to.
A lady from Solihull in the west midlands states:
As a 67 year old…I have a mentally ill son of 44, and when I knew how severely ill he was and would never be able to work I set out to try and put a small nestegg away for him for his later years, and I stayed at work for an extra five years just because of it.
As a consequence he has about £120 a year tax refund, which I use to replace things like shoes and clothing.

A gentleman in Dudley in the west midlands writes:
I am 78 years old and a war veteran…Thirty years ago I started to invest in Unit Trusts and later in Equities. Although I never earned a large wage I managed to build up a modest investment.
That gentleman will now lose £622 as a result of the measure.

Mr. Howard Flight: Will my hon. Friend confirm that, in addition to that penalisation, when the full measure is in operation in 2004 people who do not pay income tax will also not benefit under the new ISA arrangement? The Bill was supposed to make it more tax attractive for low-income groups to save, but it makes saving less attractive on two counts—by ending tax credits and by not replacing them with an ISA scheme from which those groups will benefit.

Mr. Gibb: My hon. Friend makes a good point. When justifying the measure in Committee, the Government said that ISAs were the vehicle that such people could use, once the dividend tax credit repayment was abolished. However, for basic rate taxpayers, low rate taxpayers or non-taxpayers, there is no advantage in holding equities through an ISA. Low and basic rate taxpayers generally do not pay capital gains tax anyway, because they are unlikely to use up the annual capital gains allowance. The 20 per cent. tax credit reduced to 10 per cent. and repaid only until the year 2004, as we have heard, is hardly likely even to cover the charges. After 2004, even that small benefit from holding equities in an ISA will be abolished.
I shall mention two more people briefly. A gentleman in Burwood in Dorset states:
In the case of my wife and self the total amount which we shall be unable to reclaim is £886 per annum. As our combined annual income is approximately £11,500, this new ruling is catastrophic to us.
A couple in Dorset say:
The reason we are non-Tax payers is because we are pensioners and on a low income (hence the Non-Tax payers).
The thought of losing the ability to reclaim Tax Credits has really upset us…Last year the total reclaim between the two of us only amounted to £118.16p, but even this small amount makes a big difference to us, we use it to help the payment of bills.
That is a small sample of the correspondence that I have received, and an even smaller sample of the correspondence that I know the Paymaster General and other members of the Treasury team have received. I should have thought that that would prompt the Government into taking action before now.
The only response from the Inland Revenue is a callous letter, which states:
It would have been anomalous to allow individuals to continue to claim payment of tax credits when such tax credits are being removed from all other investors.
The anomaly is that basic rate taxpayers, lower rate taxpayers and higher rate taxpayers will all benefit from the dividend tax credit, but the only people who will not benefit from it are those who do not pay tax. For some reason, the Government—inadvertently, incompetently or deliberately—have decided that non-taxpayers should pay tax on their dividends, whereas every other section of society should not.
We went to see the Paymaster General last week. I am grateful to him for sparing the time to meet us. Both in Committee and at the meeting, he raised the difficulty over sovereign immunity—the fact that non-UK residents who have sovereign immunity would be able to continue to reclaim the tax credit.
I am surprised that the Government cannot find a way around this technical problem. The Revenue is full of technical specialists who I am sure could find a way of dealing with that loss of revenue. Despite the fact that the Government have not tabled an amendment, I hope that the Paymaster General will give an absolute commitment—with no dilutions and no caveat attached—that the Government will move an amendment to the next Finance Bill to reverse this measure. It will take effect in April 1999, which means that tax reclaims will begin to be submitted to the Revenue after April 2000 in the run-up to the general election. The political imperatives are there and, if the Government were to give such a commitment now, it would set at rest the minds of many hundreds of thousands of non-tax-paying individuals, who could be secure in the knowledge that they will continue to be able to reclaim important income from their dividend tax credits.

Ms Helen Southworth: The Government are already taking serious action to ensure that poor pensioners receive the help that they need. We recognise that that assistance is very important. My experience before coming to the House showed quite clearly that there are far too many poor pensioners in Britain, and that their number increased under the previous Government.
We have taken action to reduce value added tax on fuel and have given every pensioner household winter fuel payments. I was privileged to contribute recently to policy that reduces VAT on insulation for poor pensioners. We are looking urgently at ways of reaching the 1 million pensioners on low incomes who are not claiming the benefits to which they are entitled and that they should be receiving.
I have spoken to Ministers about this issue. I understand that there are complexities involved in identifying individual pensioners on low incomes who are affected, but I ask my hon. Friend the Paymaster General to consider seriously taking action on this matter as soon as possible.

Mr. Philip Hammond: I add my congratulations to my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) and to Age Concern on raising public awareness of this issue. It will affect large numbers of relatively poor pensioners from next April, and many of them were not aware of it until the press coverage that accompanied my hon. Friend's campaign in Committee.
The Paymaster General was clearly rattled by the points that my hon. Friend raised in Committee and, assisted by the intervention of the hon. Member for Dudley, North (Mr. Cranston), he gave us cause to hope that he would introduce a measure at this stage of the Bill's progress to ameliorate the impact on very poor pensioners. We are extremely disappointed that no Government amendment

or new clause has been tabled to give effect to the implication of the Paymaster General's comments in Committee that he was sympathetic to our concerns.
As my hon. Friend said, many hon. Members on both sides of the House have received correspondence from pensioners who will be affected by the measure. That correspondence makes pretty heart-rending reading. In many cases, we are talking about people who stand to lose perhaps £200 or £300 a year. Those people view that money, which they have habitually reclaimed in the form of dividend credits, as the means of running a car or having a modest annual holiday. They are the small luxuries of life that those people will now have to forgo.
The fact that hundreds of thousands of people are prepared to fill in the relatively complex paperwork required to reclaim sums averaging only £75 a year is testimony to the importance that they attach to this money. Those sums may seem small to us—and even smaller to the Paymaster General—but they are clearly very significant to those who stand to lose them. It is clear from reading the correspondence that great confusion, concern and distress have been caused.
Even I, cynical as I may wish to be, cannot believe that it was the Government's intention openly to penalise the poorest, the non-tax-paying pensioners, by discriminating against them and putting them in a worse position than those paying standard rate or higher rates of income tax.
I was surprised that the Paymaster General did not take the opportunity to back down gracefully. In fact, the Government's reaction has been to dig in and, despite initially showing sympathy in Committee, the Government have given no ground at all.
In Committee, we heard that it is inconvenient and expensive for the Inland Revenue to process these many small claims, but I suggest that this is an example of the tax-collecting tail wagging the tax-paying dog. It is not good enough that this mean-minded measure should go through simply for the convenience of Inland Revenue officials.

Mr. Edward Davey: Is the hon. Gentleman aware that the Government drafted the Finance Act 1997 in such a way as to ensure that there was no increase in the tax burden of higher rate taxpayers as a result of the move? Does the hon. Gentleman wish to comment on that?

Mr. Hammond: The point that my hon. Friends and I would like to emphasise is that the measure discriminates against the poorest members of our society. In Committee, Labour Members, failing to understand the concerns raised by Conservative Members, attempted to paint this as some kind of fat-cats charter, but, by definition, the measure affects only those who are too poor to pay income tax. I cannot understand how a new Labour Government can believe that they are enhancing their political credentials by forcing through such a measure, creating 250,000 or so angry, disfranchised pensioners as a result of the loss of a vital chunk of income.
The measure is not simply mean-minded, but politically incompetent. The Government put up the Paymaster General, with all the baggage that he carries, to tell the poorest pensioners that they must give up, on average, £75 each for the convenience of the Inland Revenue and because it would be too tricky for the Government to find


a way of allowing them that little extra bit of income without allowing foreign potentates, who benefit from sovereign immunity, to slip through a loophole.
In Committee, the Paymaster General raised our hopes when he appeared to be sympathetic to the suggestion of my hon. Friend the Member for Bognor Regis and Littlehampton. He has now dashed those hopes and, with them, the hopes of many hundreds of thousands of pensioners throughout Britain. It is not part of my brief to recommend to the Government ways to avoid alienating 250,000 voters, but the matter is far more important than narrow party political advantage and I urge the Government, even at this late stage, not to commit this ludicrous act of mean-minded political suicide in penalising the very people whom they claim to be helping and whom it is the function of all hon. Members to seek to protect.

Mr. John Burnett: Considerable credit goes to the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) and Age Concern for highlighting the matter, and I am happy again to pay tribute to both.
The impact of the abolition of dividend tax credits on nil taxpayers, the poorest and most vulnerable, marked one of the low points in the Finance (No. 2) Bill. I cannot understand whether officials briefed Ministers on the consequences. By any objective assessment, the poorest and most vulnerable should pay the least tax. It is just and equitable that non-taxpayers who hold shares are not brought into taxation by the denial of the ability to recover tax credits on the meagre dividends that are paid to them. Therefore, what possible reasons do the Government have for denying this relief?
During the debate in Committee on 14 May, the Paymaster General, who is, I believe, convinced of the argument for change, said that he would reconsider the matter which has been discussed in today's debate. Will he give the House an up-to-date account of exactly what the Government propose to overcome such a mean and unnecessary consequence of their advance corporation tax change? Is it not time to hear first hand exactly what measures they will take to relieve this unjust and unfair consequence?

Mr. Tim Loughton: This morning, I received in the post yet another letter from a constituent on this subject. We have heard from my hon. Friends how postbags have been deluged with correspondence from constituents who are only now waking up to the implications of the measure. Along with every hon. Member, I congratulate my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) on his sterling work on the new clause, without wishing to make his head swell even more than it has already.
A constituent in Worthing listened to "Money Box" on Radio 4 only a few weeks ago. He heard:
They said that the people most affected would be those on low incomes who had perhaps inherited shares. This applies to me and to my disabled sister—both of us inherited shares from our father.
My constituent and his sister
feel very angry that the present Government who profess to help the not so well off, should bring about the exact opposite.

He went on to refer to a pamphlet that they received from Saga, which stated:
Tax changes punish the poor.
The letter could equally have been written by someone who had shares because of redundancy and had invested the payment in a small number of investments, or by any of the millions of people, many thousands of whom would have been of pensionable age, who bought a modest number of shares in the privatisations.

Mr. Swayne: There seems to be a received wisdom that people who hold shares as a means of saving are somehow financially sophisticated and able to take care of themselves. Does my hon. Friend acknowledge that many such people who have written to me, and who may have written to him, cottoned on to the change only as a consequence of the campaign that has been mounted by our hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb)? Such is their level of financial sophistication.

Mr. Loughton: To pour further praise on my hon. Friend the Member for Bognor Regis and Littlehampton, my hon. Friend the Member for New Forest, West (Mr. Swayne) is right. Our hon. Friend and Age Concern brought the matter to the attention of the media, which resulted in mass publicity in the newspapers and on the radio, and probably on satellite television as well.

Mr. Bercow: I am grateful to my hon. Friend for his characteristic courtesy in giving way. I hope that he will understand if I momentarily turn from praise, justified though it is, to blame. Our hon. Friend the Member for Bognor Regis and Littlehampton referred to a callous letter from the Inland Revenue, dated 11 February, which defended current Government policy. Although the Paymaster General is legitimately attacked on this matter, does my hon. Friend agree that the Financial Secretary should also be attacked on it? She is the Minister responsible for the Revenue: is it not about time that we were told whether she is in office or in power, and whether she is told what to do or whether she has the slightest influence on Government policy?

Mr. Loughton: My hon. Friend is right: the entire Treasury team should be ashamed of that act of callousness of the worst order. To put the record straight, I should point out that the article in Age Concern's magazine referring to the callousness of the measure contained a photograph of my hon. Friend the Member for Bognor Regis and Littlehampton with the word "callous" underneath it. Of course, that referred not to my hon. Friend, but to the culprits and perpetrators of the crime, who sit on the Labour Benches. It is worth putting the record straight, because we do not want his reputation blemished for the entirely pure and philanthropic measures that he promoted so ably.
May I return to my speech? As my hon. Friends have said, only now are people waking up to what has happened, yet the legislation was passed a year ago. Many of my hon. Friends who are here today and I were on the Finance Bill Standing Committee last year. They will remember that it was guillotined through in just five days, compared with the six and a half weeks of luxury indulgence which we have enjoyed this year. The Budget announced on 2 July passed into law by the end of July,


so organisations such as Age Concern had no time to get their act together and make proper representations to help us publicise that highly damaging measure. The measure was rushed through with undue haste, and only now are the victims of that callous act waking up to the fact that in April 1999 they will be substantially less well off.
The measure affects more than 300,000 people of pensionable age earning less than £5,400. The cost to the Exchequer is relatively small—some £25 million to £30 million, perhaps a little more, next year. Thus it affects the poorest pensioners. I represent an area of Worthing with the highest number of pensioners in the entire country, so I feel particularly aggrieved that yet another blatant measure is discriminating against good pensioner folk. Few of the pensioners in my constituency live in comfortable luxury, and many make their way on little more than the basic pension. The poorest people are hit the hardest.
I am sorry that the Financial Secretary would not take an intervention when she spoke a moment ago. She was dangling yet another red herring—goodness knows, we have had so many during the stages of the Finance Bill—when she said that the Government were enabling more pensioners to take advantage of more benefits. Our proposal would be much better because it would enable pensioners to stand on their own two feet and support themselves from their own investments. They could take advantage of dividends and dividend tax credits which are rightfully theirs, rather than having to rely on the welfare state. They are entitled to do that, but, if more people can make preparations for their own retirement and stand on their own feet, that is to be encouraged. This measure takes away yet another leg of support. It is a shame that the Financial Secretary did not accept that point.
In Committee, we had an awful lot of red herrings from the Paymaster General. In replying to an amendment on this very subject, he started talking about individual savings accounts. If he is absolutely honest with himself, ISAs are of minimal, if any, attraction to that class of investor because none of them will get anywhere near the annual capital gains tax allowance. Moreover, ISAs hold few income attractions, if any, for those on low incomes. Even if there were any, they would all be gobbled up by costs. It was a real red herring—another desperate attempt to justify ISAs replacing a far better scheme. The Paymaster General should come clean on that.
As I said in Committee, one option open to pensioners, if they are sophisticated enough to take investment advice, is to switch into bonds that pay gross dividends or into bank or building society accounts that pay interest gross. However, why should we condemn pensioners to capital growth in those accounts when we know the much greater attractions of capital growth in the equity market? Why should they be condemned to a fairly pedestrian investment portfolio of fixed interest stocks or cash investments? Their choice will be limited if the new clause is not accepted.
We have all received many representations. I pay tribute to the bravery of the hon. Member for Dudley, North (Mr. Cranston), who did not realise that he was fundamentally undermining the Government's stance at the time and did a wonderful U-turn with great aplomb to support the amendment in Committee.
At one point in Committee, we were greatly cheered. The Paymaster General said:
Combined with the abolition of ACT, we have made a major improvement of the corporate taxation system. We are getting rid of the in-built bias towards paying dividends".
He did not get off to a very good start. He then said:
I shall deal with ISAs.
That was such a red herring that it was ruled out of order, and I hope that he does not repeat that error when he replies to the debate. Then things started getting better. After we had impressed on him the merits of the amendments, he said:
The calculations that were made by the Opposition Members and by my hon. Friend the Member for Dudley, North are pretty much correct.
Things were looking up. We thought, "Golly, will this be the first amendment that we get accepted by the Government?" He went on:
Perhaps a case can be made for an overall limit on payable tax credits, which might be in the region that Age Concern described in its very good paper.
That sounded as though the Paymaster General and his team were on the verge of accepting that sensible, common-sense amendment to prevent discrimination against the poorest people in the investment community. But then it all went wrong. He said:
I see at this critical moment that my right hon. Friend the Chief Secretary is invigilating.
At that point, the Chief Secretary, who alas is not present today, appeared, and all the promises evaporated. The guarantees were suddenly not guarantees, and the promises were no longer promises. He ended up by saying:
I make no promises, other than to revert to the matter on Report."—[Official Report, Standing Committee E, 14 May 1998; c. 191–94.]
What an enormous anti-climax that was.
I hope that the Paymaster General, without the presence in the Chamber of the Chief Secretary—although the Whip is here on his behalf—will have the courage to accept this common-sense new clause, and will show that the Government are concerned about the poorest in our society. It is very late in the day, but the Government have tabled scores of amendments to their own legislation, so it would not hurt them to promise to redraft this new clause to make it acceptable.
I hope that we are given better reasons than those given by the hon. Member for Dudley, North, who said that the amendments were unacceptable for technical reasons. We deserve better than that, and the pensioner investment community demands better. If the Paymaster General is not prepared to accept the new clause, we demand a proper explanation of why the Government continue to hit the poorest hardest.

Mr. Quentin Davies: For all the Government's failings, shortcomings, incompetence and insensitivity, for which I and many Opposition Members have berated them in the past year, I never expected that they would get into this mess. I hesitated before trying to catch your eye, Mr. Deputy Speaker, because I expected the Paymaster General to pre-empt the debate by declaring that the Government had come up with a solution that would protect the interests of the


poorest savers. The Government may feel that I have been unfairly critical of them, but even I gravely overestimated them.
It is clear that the Paymaster General has no intention of announcing that the Government will come up with a solution to this problem. It is a human problem, and, ultimately, that is what is important. The hon. Gentleman and the Financial Secretary have constituents, and I cannot believe that they have not seen the shine in the eyes of a poor pensioner who has received a cheque from the Inland Revenue for a small amount of money, which to some people on the Treasury Bench may be a derisory amount, but which to that pensioner is of enormous consequence.
Unless the Government change their mind or we succeed in defeating them on the new clause, the pleasure and happiness that very poor people derive from receiving such an exciting and unexpected bonus—they live on the margin and have only £100 or £200 in hand—will be replaced by tears. Labour Members will see those people in their surgeries, as we will in ours. No doubt they are more hard-hearted than we are and will be less moved when that happens, but happen it most certainly will.
4.45 pm
I shall move from human appeals to the more rigorous analysis that we are used to when discussing fiscal matters. I ask for a little more rigour in the Government's analysis, too. When the Paymaster General replies to the debate, he should not use the three arguments that I understand he used in Committee, none of which will wash. First, he should not talk about the feasibility and desirability of relieving the poorest savers from the need to pay tax, because that would not be the effect of the new clause.
Unfortunately, such is the effect of the abolition of advance corporation tax and the dividend tax credit that everyone who holds shares in British companies, directly or indirectly, will now pay tax. The argument is about whether the poorest pensioners and savers should pay double tax. The rest of us, whether we hold shares directly or through institutions and pension funds, will now pay double tax. The companies of which we are shareholders will pay corporation tax, and we will be taxed on the distributed profits. The issue is not whether, by means of the new clause, we should relieve the poorest savers from paying tax; t is whether we should relieve them of the burden of paying double tax.
The second point that I hope the hon. Gentleman will not make is that, for technical reasons, it is impossible to accept the new clause or to devise an equivalent measure to relieve the poorest savers—who are so poor that their incomes do not reach the income tax threshold—from the need to pay double tax on dividends from their investments. That cannot be true, because the Government have already introduced such a measure giving charities precisely the relief that we want for the poorest pensioners and savers. It will not wash to argue that there is no effective means of providing such relief, because the Government have condemned themselves by protecting charities from the abolition of the dividend tax credit.
The third argument, which has already been effectively demolished by some of my hon. Friends, is that the poorest savers can switch into the Government's new individual savings account. That argument will not wash

either. As my hon. Friends have already said, the small savers involved are most unlikely to be able to benefit from the capital gains tax provisions of ISAs, because their capital gains will probably not exceed the individual allowance in any one year.
The major benefit of ISAs is the relief from capital gains tax liability. ISAs are not a solution to the problem of paying tax on dividends, because people will have to pay a management fee, and other commissions and charges, for the privilege of having an ISA. People will have to pay a fee to the intermediary who holds the franchise and who sets up the ISA: that is what these tax-advantaged savings vehicles are all about.
For people who pay tax at the standard rate of 23 per cent. or at the higher marginal rate of 40 per cent., it may be sensible to pay the fees required to join an ISA and to shelter part of their portfolio. Let me make the arithmetic simple. Let us say that the average dividend yield of the equities in an ISA is 4 per cent., and that tax is being paid at a marginal rate of 23 per cent. Roughly one of those four percentage points will be lost in tax. Someone who joins an ISA will probably pay 1 per cent. of the value of the fund by way of a management fee. In other words, what that person is not paying to the Revenue he will be paying to the financial intermediary who set up the ISA.
Opposition Members, at least, are concerned with the interests of poor savers. I am extremely sorry that that concern is not shared by Labour Members—apart from the hon. Member for Dudley, North (Mr. Cranston), to whom I pay tribute for his individuality and courage. By definition, poor savers are not currently paying tax. For them, the choice will be between paying a tax that they do not currently pay—and, in my view, ought not to pay—and paying the same amount to an intermediary for the privilege of putting their shares into an ISA. Either way, they lose, and whether the Revenue or the manager of the ISA gains is a somewhat academic question for them. As I said earlier, an apparently small financial loss may be disproportionately grave in terms of the sum of such people's happiness.
I hope that we shall hear none of those three arguments this afternoon. I hope that we can now concentrate on whether it is fair, and economically sensible, to penalise the poorest savers—those who may begin to save modest amounts from the lowest incomes—by imposing a double taxation regime on them. That is what the new clause is about. If the Government reject it—notwithstanding all the unpleasant, cruel and callous things that they have done so far, and the many more that they will no doubt do in future—their action will be written high up on their tombstone. It will remain in the minds of the electorate—not just those on the lowest incomes who will be directly affected, but all in our country who believe that taxation should be fair and just, and that those with the lowest incomes should be expected to pay proportionately the lowest share of the country's collective tax costs.

Mr. Andrew Tyrie: I cannot do better than say how much I agree with what I have just heard from my hon. Friend the Member for Grantham and Stamford (Mr. Davies). It was a typically eloquent and impressive exposition of the arguments, referring to all the key points, including those which I hope we shall not hear later from the Paymaster General—who, I must say, has looked rather bored during our proceedings so far. He


has looked at his watch no fewer than three times, and has sat with his arms folded in a rather uninterested manner for most of the debate.
Let me begin by praising my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), who is a neighbour of mine down in West Sussex and who first alerted me to this issue. Had he not done so, I would not have twigged—at least, not for a long time—that this change was in the Finance Bill. It was, of course, hidden away. It is a hidden consequence of the decision to make a grab on pension funds. The Labour party, which pushed the measure through at the time of the last Budget, had not thought it through at all. Many aspects of the legislation have had to be repaired: the sticking plaster has had to come out, and the Government have had to make emergency adjustments so that it looks right.
I have wondered why that is, and I think that the resignation of Sir Terry Burns gives us at least a bit of the answer. Sir Terry Burns is one of the best and most senior advisers in the Treasury. I would not mind betting that the policy on the pensions grab was thought out when Labour was in opposition, and was foisted on the Treasury without its having the opportunity to think it through carefully. That is why all the unintended consequences are now coming out of the woodwork—consequences that need to be dealt with.
I hope that Treasury Ministers will now begin to learn that it really does help to use the official machine rather than trying to bypass it. The press reports stating that the Chancellor works without properly consulting his official advisers, using an inner coterie instead, appear to have some credibility when we consider the effects of legislation such as this.
What exactly are those unintended consequences? My hon. Friend the Member for Bognor Regis and Littlehampton spelled them out very eloquently. They are very bad news for non-taxpayers, the people whom Labour purports to want to help most. We know that Labour does not help taxpayers, but we now also know that it does not want to help non-taxpayers either.
As I understand it, non-taxpayers used to be able to claim tax credits on dividend income, but they will soon be unable to do so. There are 300,000 people over 65 in that category—some are my constituents—and they will be deeply angered by the change. One of them came to see me about it before I understood the issue. Until he sat down and described it to me, I did not have a clue what it was about: I had not grasped the significance of the change. Several more people have written to me expressing their concern.
Incidentally, when I write to the Paymaster General, I rarely receive answers to my letters inside two to three months. He is not listening now, as is so often the case when people try to make points to him. I have a whole batch of letters—

Mr. Hammond: My hon. Friend may be interested to know that some members of the Standing Committee are still waiting for letters that the Paymaster General promised to write to them during the Committee stage.

Mr. Tyrie: That does not surprise me at all. I am flabbergasted by the time it takes to get a reply from the Paymaster General on this or any other issue.
As my hon. Friend the Member for Bognor Regis and Littlehampton pointed out, the average amount involved may seem small—£75, although it may be appreciably more in some instances—but it is a significant sum for non-taxpayers, to whom such small amounts matter a great deal. That is why Age Concern, among other organisations, has decided to make such an issue of the change. We have heard at least one quotation from an Age Concern document this afternoon. Age Concern is right to be worried, because the poor will be hit hardest. As I understand it, taxpayers will continue to obtain the benefit of the tax credit, but non-taxpayers will not. That will be the fundamental anomaly and injustice in the legislation, unless the Government make a last-minute decision to find a way out of this hole.
At present, the vast majority of those who will be affected—two thirds of a million altogether, including 300,000 pensioners—do not know about the measure. They have no reason to know, and no way of finding out whether the change will happen. They do not follow the Finance Bill. I am sure that those who drafted the Bill did not know about it at the time. How, then, can those people be expected to know? The time will come, however, when they will know, and they will resent it very much.
I said that the change was unintended. That may be a charitable view, but it is probably accurate. I gave an explanation of why it was unintended: Treasury Ministers do not listen to their own officials, although I think they are beginning to listen to them a little more than they did when they first arrived. Some of their best officials pushed off immediately; others waited a year out of politeness.
This afternoon, we shall find out whether this is an unintended measure that the Government want to put right, or a measure for which they should henceforth be squarely blamed. If they refuse to accept the new clause, we will know that this is something that they intend and want to do. They will have had ample time to reverse it and to think through what to do. They will be judged on the decision that they take.

Mr. Geoffrey Clifton-Brown: Is my hon. Friend aware that anyone earning up to the new personal allowance threshold of £4,195, or just £80 a week, will be hit by this measure, which will thus affect some of the poorest in the land? Does he not think that that is highly reprehensible?

Mr. Tyrie: I did not know the exact numbers. I do find it highly reprehensible. I find it highly reprehensible, too, that Treasury Ministers are not even bothering to listen to the points that are being made to them.
If Treasury Ministers ignore and sweep away the new clause, we—and hundreds of thousands of people throughout the land—will know that it was their intention effectively to reduce the income of some of the poorest people, including pensioners.

5 pm

Mr. Geoffrey Robinson: There has been a good deal of cross-party support on this matter. I think that that was evidenced at the meeting that I was pleased to have with Age Concern, with the hon. Members for Torridge and West Devon (Mr. Burnett) and for Bognor Regis and Littlehampton (Mr. Gibb), and with my hon. Friend the Member for Dudley, North (Mr. Cranston). I think that


they made a powerful case. I think that the case in the country, and the feelings that have been conveyed, are considerable. I am sympathetic to that case. I have listened hard to it, but hon. Members will obviously be aware that we have not tabled a new clause at this stage and that, from our point of view, the matter is still under review. I am taking a deep personal interest in it.
Most hon. Members have made pretty much the same points during this debate as were made in Committee. I do not think there are any new points that particularly require addressing by me. As always, I welcome the hon. Member for Grantham and Stamford (Mr. Davies) to our debates. I am pleased that he is not deterred by his new onerous responsibilities from attending them. He is always a welcome figure.
Some points were quite irrelevant. The hon. Member for Chichester (Mr. Tyrie) made some remarks regarding some senior civil servants leaving early and others leaving now. Nothing could be further from the truth. We work extreme closely with civil servants. All the policies are worked out with civil servants in the Treasury, in Customs and Excise and at the Inland Revenue itself, so the hon. Gentleman need not worry about that. There is plenty of contact, and I am happy to have such good relations with the most senior and the most junior officials in the Department.

Mr. Quentin Davies: The hon. Gentleman is trying to muffle my fire by throwing up a smokescreen of compliments in my direction; in all honesty, that will not work. May I ask him to address the specific point about charities? If it is possible to devise a solution to protect charities, why is it so technically difficult to devise a solution to protect the poorest savers?

Mr. Robinson: That is a fair point. We have had good responses from the charities for what we did there, which was, as the hon. Gentleman knows, unprecedentedly generous: when the Conservatives removed tax credits, they gave a much shorter period. With regard to pensioners and non-taxpayers, the matter is more complicated. I say this to Conservative Members, including the hon. Member for Bognor Regis and Littlehampton, who has led the campaign from the Opposition Benches: it will not be issues of sovereign immunity that will stop us doing this. It is not a question of the convenience of the Inland Revenue. There are certain things that we are looking at. We are looking at alternatives, as we did when we went into the consultation period following the initial ending of tax credits, and deciding which way to go on company taxation policy overall with regard to ACT.
I can give no commitment today and I have not brought a solution to the House; we would not be having this sort of debate if I had. I am aware also of the growing anxiety among poorer non-taxpayers who have been hit by the measure, so I know that we need to make our position utterly clear as quickly as possible. I am working to that end.

Mr. Fallon: May I reply to the debate and thank all those who have participated? I think almost everyone who has spoken has shown some sympathy with the new clause. I am particularly grateful for the support from the Liberal Democrat Benches. My hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), with the

eloquence and precision that we have come to expect of him, made the case again: in this matter, he is the pensioners' champion. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) pointed out that the sums involved make a difference to the quality of life for some of our poorest pensioners. I am grateful, too, for the support of my hon. Friends the Members for East Worthing and Shoreham (Mr. Loughton), for Grantham and Stamford (Mr. Davies) and for Chichester (Mr. Tyrie).
No one defended the Government's position on the new clause. The hon. Member for Dudley, North (Mr. Cranston) gave us his usual cameo of the Paymaster General's learned junior and said that there was something defective about the new clause, but I think he has some sympathy with, and is perhaps a secret supporter of, the new clause.
Then we heard, most surprisingly of all, from the hon. Member for Warrington, South (Ms Southworth). I am told that she was a member of the Standing Committee and that she sat upstairs with us for six weeks. She was certainly silent for six weeks, yet now she suddenly appears in the House and tells us that she has had a word with the Paymaster General. That parliamentary effort seems to have exhausted her—she has now disappeared—but we wait to see what effect that will have. We shall be judging the effort that is put in by Labour Members on this matter.
To the Paymaster General, I would say, "We expected a bit more than that." He has had six weeks to correct this injustice and to come up with an amendment of his own. Yesterday, there were amendments on the Order Paper to help the casinos. Perhaps he is more interested in the casinos than in the lives of our poorest pensioners. He has had six weeks to draft an amendment. He has admitted tonight that drafting such an amendment is not impossible—that there may be technical difficulties, but that they can be overcome. Indeed, he has said that he has listened sympathetically and has the matter under review.
The Government brought about this injustice a year ago. They have had plenty of time to review it. This was slipshod, inadvertent drafting, for which the Financial Secretary was responsible a year ago. Little wonder that she was not put up to answer the debate, and that it was left up to the Paymaster General instead.
There are two choices before the House. We can—at one point I was considering doing this—give the Paymaster General the benefit of the doubt, as we have done quite a lot, on quite a number of matters, over the past few months, or we can place on record our opposition to one of the meanest tax increases of all. We could put a marker down now, while he works away on his amendment, to the effect that we are opposed to the measure on behalf of 300,000 of the poorest pensioners—people who have put something aside, who have not claimed benefit, who have saved for their old age and who now find a Labour Government are robbing them of sums of £75 or £100. It is right that we press the new clause, and I invite my hon. Friends to support it.

Question put, That the clause be read a Second time:—

The House divided: Ayes 171, Noes 284.

Division No. 318]
[5.8 pm


AYES


Ainsworth, Peter (E Surrey)
Hamilton, Rt Hon Sir Archie


Allan, Richard
Hammond, Philip


Amess, David
Hancock, Mike


Arbuthnot, James
Harris, Dr Evan


Ashdown, Rt Hon Paddy
Harvey, Nick


Atkinson, David (Bour'mth E)
Hawkins, Nick


Baker, Norman
Hayes, John


Ballard, Jackie
Heald, Oliver


Beggs, Roy
Heath, David (Somerton & Frome)


Bercow, John
Heathcoat-Amory, Rt Hon David


Beresford, Sir Paul
Hogg, Rt Hon Douglas


Body, Sir Richard
Horam, John


Boswell, Tim
Howard, Rt Hon Michael


Bottomley, Peter (Worthing W)
Hughes, Simon (Southwark N)


Brady, Graham
Hunter, Andrew


Brake, Tom
Jack, Rt Hon Michael


Brand, Dr Peter
Jackson, Robert (Wantage)


Brazier, Julian
Jenkin, Bernard


Browning, Mrs Angela
Johnson Smith, Rt Hon Sir Geoffrey


Bruce, Ian (S Dorset)



Bruce, Malcolm (Gordon)
Jones, Nigel (Cheltenham)


Burnett, John
Kennedy, Charles (Ross Skye)


Burns, Simon
Key, Robert


Cash, William
Kirkbride, Miss Julie


Chapman, Sir Sydney (Chipping Barnet)
Kirkwood, Archy



Laing, Mrs Eleanor


Chope, Christopher
Lait, Mrs Jacqui


Clappison, James
Leigh, Edward


Clark, Rt Hon Alan (Kensington)
Letwin, Oliver


Clarke, Rt Hon Kenneth (Rushcliffe)
Lewis, Dr Julian (New Forest E)



Lidington, David


Clifton-Brown, Geoffrey
Lilley, Rt Hon Peter


Collins, Tim
Livsey, Richard


Colvin, Michael
Lloyd, Rt Hon Sir Peter (Fareham)


Cormack, Sir Patrick
Llwyd, Elfyn


Cotter, Brian
Loughton, Tim


Cran, James
Luff, Peter


Curry, Rt Hon David
MacGregor, Rt Hon John


Dafis, Cynog
McIntosh, Miss Anne


Davey, Edward (Kingston)
MacKay, Andrew


Davies, Quentin (Grantham)
McLoughlin, Patrick


Davis, Rt Hon David (Haltemprice)
Major, Rt Hon John


Dorrell, Rt Hon Stephen
Maples, John


Duncan, Alan
Maude, Rt Hon Francis


Duncan Smith, Iain
May, Mrs Theresa


Emery, Rt Hon Sir Peter
Michie, Mrs Ray (Argyll & Bute)


Evans, Nigel
Moore, Michael


Ewing, Mrs Margaret
Morgan, Alasdair (Galloway)


Faber, David
Moss, Malcolm


Fallon, Michael
Nicholls, Patrick


Fearn, Ronnie
Norman, Archie


Flight, Howard
Öpik, Lembit


Forth, Rt Hon Eric
Ottaway, Richard


Foster, Don (Bath)
Paice, James


Fowler, Rt Hon Sir Norman
Paterson, Owen


Fox, Dr Liam
Pickles, Eric


Fraser, Christopher
Prior, David


Garnier, Edward
Redwood, Rt Hon John


George, Andrew (St Ives)
Rendel, David


Gibb, Nick
Robathan, Andrew


Gill, Christopher
Robertson, Laurence (Tewk'b'ry)


Gillan, Mrs Cheryl
Rowe, Andrew (Faversham)


Goodlad, Rt Hon Sir Alastair
Ruffley, David


Gorman, Mrs Teresa
Russell, Bob (Colchester)


Gorrie, Donald
St Aubyn, Nick


Green, Damian
Sanders, Adrian


Greenway, John
Sayeed, Jonathan


Grieve, Dominic
Shephard, Rt Hon Mrs Gillian


Gummer, Rt Hon John
Shepherd, Richard





Simpson, Keith (Mid-Norfolk)
Wallace, James


Soames, Nicholas
Walter, Robert


Spicer, Sir Michael
Wardle, Charles


Stanley, Rt Hon Sir John
Waterson, Nigel


Streeter, Gary
Webb, Steve


Stunell, Andrew
Whittingdale, John


Swayne, Desmond
Wigley, Rt Hon Dafydd


Swinney, John
Wilkinson, John


Syms, Robert
Willetts, David


Tapsell, Sir Peter
Willis, Phil


Taylor, Ian (Esher & Walton)
Wilshire, David


Taylor, John M (Solihull)
Winterton, Mrs Ann (Congleton)


Taylor, Matthew (Truro)
Winterton, Nicholas (Macclesfield)


Taylor, Sir Teddy
Woodward, Shaun


Tonge, Dr Jenny
Yeo, Tim


Townend, John
Young, Rt Hon Sir George


Trend, Michael



Tyler, Paul
Tellers for the Ayes:


Tyrie, Andrew
Sir David Madel and


Viggers, Peter
Mr. Stephen Day.


NOES


Ainger, Nick
Coleman, Iain


Ainsworth, Robert (Cov'try NE)
Connarty, Michael


Alexander, Douglas
Cook, Frank (Stockton N)


Anderson, Janet (Rossendale)
Corbett, Robin


Armstrong, Ms Hilary
Corbyn, Jeremy


Ashton, Joe
Corston, Ms Jean


Atkins, Charlotte
Cousins, Jim


Austin, John
Cranston, Ross


Banks, Tony
Crausby, David


Bayley, Hugh
Cummings, John


Beard, Nigel
Cunliffe, Lawrence


Begg, Miss Anne
Cunningham, Jim (Cov'try S)


Benn, Rt Hon Tony
Dalyell, Tam


Bennett, Andrew F
Darling, Rt Hon Alistair


Benton, Joe
Darvill, Keith


Berry, Roger
Davey, Valerie (Bristol W)


Betts, Clive
Davidson, Ian


Blears, Ms Hazel
Davies, Rt Hon Denzil (Llanelli)


Blizzard, Bob
Davies, Geraint (Croydon C)


Boateng, Paul
Davies, Rt Hon Ron (Caerphilly)


Borrow, David
Davis, Terry (B'ham Hodge H)


Bradley, Keith (Withington)
Dawson, Hilton


Bradley, Peter (The Wrekin)
Dean, Mrs Janet


Bradshaw, Ben
Denham, John


Brinton, Mrs Helen
Dismore, Andrew


Brown, Rt Hon Nick (Newcastle E)
Dobbin, Jim


Brown, Russell (Dumfries)
Donaldson, Jeffrey


Browne, Desmond
Donohoe, Brian H


Buck, Ms Karen
Doran, Frank


Burden, Richard
Drew, David


Burgon, Colin
Eagle, Maria (L'pool Garston)


Byers, Stephen
Ellman, Mrs Louise


Campbell, Alan (Tynemouth)
Ennis, Jeff


Campbell, Mrs Anne (C'bridge)
Etherington, Bill


Campbell, Ronnie (Blyth V)
Fatchett, Derek


Cann, Jamie
Field, Rt Hon Frank


Caplin, Ivor
Fitzpatrick, Jim


Casale, Roger
Flint, Caroline


Caton, Martin
Flynn, Paul


Chapman, Ben (Wirral S)
Foster, Rt Hon Derek


Chaytor, David
Foster, Michael Jabez (Hastings)


Chisholm, Malcolm
Foster, Michael J (Worcester)


Clapham, Michael
Gapes, Mike


Clark, Rt Hon Dr David (S Shields)
Gardiner, Barry


Clark, Dr Lynda (Edinburgh Pentlands)
George, Bruce (Walsall S)



Gerrard, Neil


Clark, Paul (Gillingham)
Gibson, Dr Ian


Clarke, Charles (Norwich S)
Gilroy, Mrs Linda


Clarke, Tony (Northampton S)
Godman, Dr Norman A


Clelland, David
Goggins, Paul


Clwyd, Ann
Golding, Mrs Llin


Coaker, Vernon
Gordon, Mrs Eileen


Coffey, Ms Ann
Grant, Bernie


Cohen, Harry
Griffiths, Jane (Reading E)






Griffiths, Nigel (Edinburgh S)
Marshall, David (Shettleston)


Grocott, Bruce
Marshall, Jim (Leicester S)


Grogan, John
Marshall-Andrews, Robert


Gunnell, John
Martlew, Eric


Hain, Peter
Meacher, Rt Hon Michael


Hall, Mike (Weaver Vale)
Meale, Alan


Hamilton, Fabian (Leeds NE)
Merron, Gillian


Hanson, David
Michael, Alun


Harman, Rt Hon Ms Harriet
Milburn, Alan


Heal, Mrs Sylvia
Miller, Andrew


Healey, John
Mitchell, Austin


Henderson, Ivan (Harwich)
Moffatt, Laura


Heppell, John
Morgan, Ms Julie (Cardiff N)


Hewitt, Ms Patricia
Morgan, Rhodri (Cardiff W)


Hill, Keith
Morris, Ms Estelle (B'ham Yardley)


Hinchliffe, David
Mudie, George


Hodge, Ms Margaret
Mullin, Chris


Hoey, Kate
Murphy, Jim (Eastwood)


Home Robertson, John
O'Brien, Bill (Normanton)


Hood, Jimmy
Olner, Bill


Hoon, Geoffrey
O'Neill, Martin


Howarth, Alan (Newport E)
Organ, Mrs Diana


Hoyle, Lindsay
Osborne, Ms Sandra


Hughes, Ms Beverley (Stretford)
Palmer, Dr Nick


Hughes, Kevin (Doncaster N)
Pearson, Ian


Humble, Mrs Joan
Pendry, Tom


Iddon, Dr Brian
Pickthall, Colin


Illsley, Eric
Pike, Peter L


Jackson, Ms Glenda (Hampstead)
Plaskitt, James


Jackson, Helen (Hillsborough)
Pope, Greg


Jenkins, Brian
Pound, Stephen


Johnson, Alan (Hull W & Hessle)
Powell, Sir Raymond


Jones, Mrs Fiona (Newark)
Prentice, Ms Bridget (Lewisham E)


Jones, Ieuan Wyn (Ynys Môn)
Prentice, Gordon (Pendle)


Jones, Jon Owen (Cardiff C)
Primarolo, Dawn


Jones, Dr Lynne (Selly Oak)
Prosser, Gwyn


Jones, Martyn (Clwyd S)
Purchase, Ken


Jowell, Ms Tessa
Quinn, Lawrie


Kaufman, Rt Hon Gerald
Radice, Giles


Keeble, Ms Sally
Rammell, Bill


Keen, Alan (Feltham & Heston)
Reed, Andrew (Loughborough)


Keen, Ann (Brentford & Isleworth)
Reid, Dr John (Hamilton N)


Kennedy, Jane (Wavertree)
Robertson, Rt Hon George (Hamilton S)


Khabra, Piara S



Kidney, David
Robinson, Geoffrey (Cov'try NW)


Kilfoyle, Peter
Roche, Mrs Barbara


King, Andy (Rugby & Kenilworth)
Rooker, Jeff


Kingham, Ms Tess
Ross, Ernie (Dundee W)


Kumar, Dr Ashok
Rowlands, Ted


Ladyman, Dr Stephen
Roy, Frank


Lawrence, Ms Jackie
Ruddock, Ms Joan


Lepper, David
Russell, Ms Christine (Chester)


Leslie, Christopher
Ryan, Ms Joan


Lewis, Terry (Worsley)
Salter, Martin


Liddell, Mrs Helen
Savidge, Malcolm


Linton, Martin
Sedgemore, Brian


Livingstone, Ken
Shaw, Jonathan


Lloyd, Tony (Manchester C)
Sheerman, Barry


Lock, David
Sheldon, Rt Hon Robert


Love, Andrew
Simpson, Alan (Nottingham S)


McAllion, John
Singh, Marsha


McAvoy, Thomas
Skinner, Dennis


McCabe, Steve
Smith, Miss Geraldine (Morecambe & Lunesdale)


McCafferty, Ms Chris



McDonagh, Siobhain
Smith, Llew (Blaenau Gwent)


McDonnell, John
Smyth, Rev Martin (Belfast S)


McFall, John
Soley, Clive


McGuire, Mrs Anne
Southworth, Ms Helen


McKenna, Mrs Rosemary
Spellar, John


McNulty, Tony
Steinberg, Gerry


MacShane, Denis
Stevenson, George


Mactaggart, Fiona
Stewart, Ian (Eccles)


McWilliam, John
Stoate, Dr Howard


Mahon, Mrs Alice
Stott, Roger


Marek, Dr John
Strang, Rt Hon Dr Gavin


Marsden, Paul (Shrewsbury)
Stringer, Graham





Stuart, Ms Gisela
Wareing, Robert N


Sutcliffe, Gerry
Watts, David


Taylor, Rt Hon Mrs Ann (Dewsbury)
White, Brian



Whitehead, Dr Alan


Temple-Morris, Peter
Wicks, Malcolm


Thomas, Gareth R (Harrow W)
Williams, Alan W (E Carmarthen)


Touhig, Don
Winnick, David


Trickett, Jon
Wood, Mike


Truswell, Paul
Woolas, Phil


Turner, Dennis (Wolverh'ton SE)
Wright, Anthony D (Gt Yarmouth)


Turner, Dr Desmond (Kemptown)
Wright, Dr Tony (Cannock)


Turner, Dr George (NW Norfolk)
Wyatt, Derek


Twigg, Derek (Halton)



Vaz, Keith 
Tellers for the Noes:


Vis, Dr Rudi
Mr. David Jamieson and


Walley, Ms Joan
Mr. Jim Dowd.

Question accordingly negatived.

New clause 5

SPECIAL REGARD TO TRADING PATTERNS OF THE RETAIL INDUSTRY

'.—After section 59DA of the Taxes Management Act 1970 (payment of corporation tax under self-assessment) there shall be inserted—

"59F In making any regulations under section 59E above, the Treasury shall have special regard to the trading patterns and profitability of the retailing industry".'.—[Mr. Heathcoat-Amory.]

Brought up, and read the First time.

Mr. Heathcoat-Amory: I beg to move, That the clause be read a Second time.
New clause 5 is an attempt to correct one of the main deficiencies in the Government's corporation tax system, specifically the payment method provided for in the Bill. However, so that I might describe fully the intention behind new clause 5, I hope that it will be in order if I explain to the House some of the problems and—in all fairness—what the Government have tried to achieve in changing the method of taxing companies.
In the past year, we have moved away from the imputation system of corporation tax, which has, for some years, been a familiar part of the taxation landscape. The system was a good one, as it avoided double taxation of profits—in the hands both of companies and of shareholders. However, the Government decided—I can appreciate at least in part their motive for doing so—to switch from that system, abolishing dividend tax credits, to a system of periodic payment of corporation tax.
Our quarrel with the Government is that they have used the change to introduce very large increases in effective taxation. We witnessed an example of such an increase last year, when the abolition of tax credits dealt an enormous blow to the pensions industry by instituting a £5 billion annual raid on pension funds.
Last year was a particularly stupid time to tax savings, as the Government were themselves becoming alarmed at inflationary pressures in the economy. Taxing savings rather than consumption was therefore the most short-sighted action. It was also in conflict with everything that the Government were saying about the need to build up a savings culture in the United Kingdom, to encourage people to provide for their own retirement and generally to increase self-reliance.
I think that the Government understood that the only realistic alternative to welfare dependency was private savings. However, as usual with the Government, there


was a huge gap between Ministers' rhetoric and their action. By withdrawing dividend tax credits, they sent a clear message to those who save and have private pensions: "Do not bother to save. If you do, the Government will come along and change all the rules, and tax the very savings and pension funds that you have built up."
Withdrawing dividend tax credits was another short-sighted action, as an acknowledged strength of the United Kingdom is the fact that we have an enormous and successful private pensions industry. It has been calculated that the total sum of pension assets under management in the United Kingdom exceeds the sum for the rest of the European Union combined. On the continent, perhaps only the Netherlands has a comparable private pensions industry. Governments in other countries, particularly some southern European ones, have colossal off-balance-sheet debt. When they promise pensions to their electorate, all they are doing is hoping that a future generation of taxpayers will meet those obligations.

Mr. Nicholas Soames: Will my right hon. Friend speculate on why the Government should have done such a stupid thing? Although it is easy for Opposition Members to understand why the Government abolished tax relief on health insurance—it was out of pure spite and malice—it seems inexplicable that they could have done such a stupid thing with savings.

Mr. Heathcoat-Amory: I am genuinely at a loss to give my hon. Friend an answer to his question. We have racked our brains to try to determine why the Government should have done something that was not only wrong in macro-economic terms, as I explained, but contradicted their express desire to get people off welfare and on to private provision and self-reliance. I can only speculate that their action was due to ignorance and, perhaps, the instinctive reaction of a Labour Government to tax, which is to try to tax their way out of any difficulty.

Mr. Hammond: Does my right hon. Friend agree that the Government may have hoped that those who were bearing the tax might not notice that they were bearing it? It was a back-door tax which many pensioners did not appreciate they were paying until Conservative Members drew their attention to it.

Mr. Heathcoat-Amory: I think that my hon. Friend has part of the answer—that the Government hoped that no one would notice. They thought that instead of taxing people directly, they could tax corporations and pension funds, which do not themselves have votes. However, millions of people who rely on those pension funds now know perfectly well that the Government effectively conducted a £5 billion-a-year-raid on pensioners and contributors to pension funds.
Last year's Budget, therefore, will always be known as the Robert Maxwell memorial Budget. That is entirely appropriate as at least two of the Ministers conducting that raid had first-hand experience of how the late Robert Maxwell handled his business affairs. So the Government did not get away with it, but the damage created by that Budget will be with us for many more years. It was compounded this year when the Government returned to

the subject and used the change in the system of corporation tax to smuggle in a back-door tax increase, borne this time by corporations and the larger business sector in particular.
5.30 pm
When we debated the economy yesterday, the Chief Secretary to the Treasury again asserted that the Government had cut the rate of corporation tax. That may be true in nominal terms, although the Government have a long way to go before they match our record. In 1979, we inherited a corporation tax rate of 52 per cent. and by gradual degrees, year upon year, we reduced it. All the Labour Government have done is to signal that there will be a further 1 per cent. reduction, which will not take effect until next April.
Companies and the Confederation of British Industry are concerned that, despite a nominal reduction, there has been an actual increase in the burden of corporation tax. I am not making an allegation or giving the House an opinion; I invite hon. Members to consult page 18 of the Budget statement, which shows that the abolition of advance corporation tax and the introduction of quarterly payments will increase tax by £100 million in the current financial year, by £1,600 million next year and by a full £2 billion in the year 2000–01.

Mr. Hammond: Are not the Government engaged in utterly cynical manipulation? They are bringing forward in a one-off shift tax revenues that would have been enjoyed later so that they can spend them during the period of this Government and, hopefully from their point of view, buy their way back into power at the next general election?

Mr. Heathcoat-Amory: Yes. My hon. Friend is entirely right. It is particularly short-sighted because the Government are relying on those same larger companies to provide the extra jobs that they need for their so-called welfare-to-work programme. If they persist in taxing those companies, it will rapidly turn into a work-to-welfare programme. There is already evidence that the labour market is turning, and investment is also affected. The same Red Book published in March shows a steady and continuing reduction in investment, particularly by the business sector. That can only be a consequence of the increased tax burden that businesses are expected to bear.

Mr. Quentin Davies: Could not the position get even worse? Not only will companies be less inclined to invest because of the extent to which the tax burden on them is increased, but if the economy continues to turn down as a direct result of Government action and inaction—manufacturing is already in recession—will not that additional £2 billion a year of cash-flow burden on British industry make all the difference to the survival or the collapse and bankruptcy of British businesses? Therefore, there may be an escalating effect. The Government may be launching a vicious circle which will be damaging to output and to employment for a long time.

Mr. Heathcoat-Amory: Yes. My hon. Friend makes a good point. The measures are pro-cyclical; they are reinforcing what is already an emerging recession. The


effective increases in corporation tax will hit companies precisely when they are already experiencing a recession. The damage has not yet become entirely apparent.
Another issue concerns our general competitiveness and our position in the European Union and in the wider world. One of the great—and, we hope, lasting—achievements of the previous Conservative Government is that we established a low-taxation structure. We are the envy of Europe. Indeed, the Chancellor of the Exchequer in one of his disguises goes round the European Union lecturing other countries about the problems of high taxes, particularly on labour, and the need for them to introduce flexible labour markets. At the same time he is undermining precisely those achievements at home, so it is little wonder that he is now excluded from Euro X and the other committees on which such matters are discussed. They have spotted a degree of hypocrisy. The Chancellor is telling them to do what he is failing to do at home.
We hope that tomorrow we shall be debating the increase in indirect taxation on transport fuel, for example, which is eroding the competitiveness of our haulage industry, but at least we thought that we had entrenched a competitive advantage for Britain in terms of business taxes which makes us a beneficiary of inward investment from the European Union and the rest of the world.

Mr. Soames: Is my right hon. Friend aware that the competitive advantage which, indeed, was well entrenched, has become eroded in such a way—even within the past year—that in my constituency and neighbouring constituencies, quite substantial numbers of jobs are already beginning to flow out of manufacturing industry? What does my right hon. Friend have to say for the future when the impact of the ill-thought-out and ill-conceived changes to corporation tax will further hit manufacturing industry?

Mr. Heathcoat-Amory: My hon. Friend is entirely right. The damage is already apparent, and we have not yet had the full impact of the changes in corporation tax. The figures that I quoted from the Red Book show that what is a problem today is in danger of becoming a catastrophe tomorrow unless avoiding action is taken. New clause 5 goes some way towards at least drawing the teeth of the change in corporation tax and bringing relief to some sectors of British industry that are faced with effective tax increases.
The Government have abolished advance corporation tax, but replaced it with a system of interim payments whereby larger companies will have to make payments on account, which represent an effective tax increase.

Mr. Andrew Love: I have listened to my right hon. Friend for the past five or seven minutes, and have yet to hear any recognition from the Opposition that, when corporation tax is reduced by 1 per cent. next year, it will be at its lowest rate ever.

Mr. Heathcoat-Amory: Yes, but the hon. Gentleman has not understood my point. Businesses are not concerned about the nominal headline rate of corporation tax if the actual tax that they pay goes up. Labour's world is all about theory. When Labour Members see a cut of 1 per cent., they assume that all the companies in their

constituencies will pay less corporation tax. The hon. Gentleman may have been nodding off when I quoted from the Red Book. Even the Chancellor's own arithmetic shows that there is an effective increase in the tax burden on companies in Britain of £2 billion a year. Does the hon. Gentleman not understand that simple point? If he will not accept it from me, will he do the House the honour of spending the next few minutes reading the Chancellor's Budget statement, which sets that point out with commendable clarity?

Mr. Oliver Letwin: Does my right hon. Friend agree that the position is even worse than he has described? He has been describing the stagnation part of inflation, but by directing their attentions to corporate taxation and interest rates, which have been shown increasingly to have a greater effect on the corporate sector than on the personal sector, the Government are not addressing inflation.

Mr. Heathcoat-Amory: My hon. Friend is right. I hope that he will catch your eye later, Mr. Deputy Speaker, to elaborate on that point.
I should like to establish the fact—this is not a contestable opinion—that the Government are smuggling in a real increase in the burden of corporation tax suffered by corporate Britain. When investment falls, as it is due to do, and unemployment increases, the Government will have only themselves to blame.

Mr. Geraint Davies: The right hon. Gentleman is confusing cash flow with tax burden. The changes will bring forward tax revenues, but the net present value of tax due by UK plc has gone down. He should welcome that, not try to confuse issues—or is he the one who is confused?

Mr. Heathcoat-Amory: The hon. Gentleman has missed the point. Bringing forward a tax payment is an effective increase in tax, hitting the cash flow of companies and costing them money. If the hon. Gentleman had to pay his tax bill a year earlier than he had been used to, he would resent the change and regard it as a burden on his finances and his ability to spend on other items. The two Labour interventions simply underline our arguments.
If the Government had wanted the change to be tax-neutral, they could have taken the advice of the CBI and put back the payment dates for corporation tax by two months. They did not do that, because they wanted the exercise to raise tax. That is what we are complaining about. The consequences will be long-lasting and very damaging.
The Government are asking companies to predict their profits. Companies will have to pay tax on estimated profits, which may well change. Many companies make unexpected capital gains or losses, perhaps towards the end of their accounting period.

Mr. Derek Twigg: On a point of order, Mr. Deputy Speaker. The new clause is specifically about


the retail industry, which the right hon. Gentleman has not mentioned. I wonder when he will speak to the new clause.

Mr. Deputy Speaker: The right hon. Gentleman is responsible for his speech. So far I have found him to be in order.

Mr. Heathcoat-Amory: The hon. Gentleman thinks that he can do your job better than you can, Mr. Deputy Speaker, but we heard almost nothing from him in Standing Committee. Many times we had to do his job for him, trying to stand up for the interests of businesses in his constituency about which he was silent. He failed to do his job upstairs and now he thinks that he can do your job better. I am grateful for your confirmation that everything that I have said is fully in order.
There is something seriously wrong with the system of the interim payments introduced by the Bill. The intention behind the new clause is to do something about that. Companies will have to predict their profits, which will be very difficult, particularly for those with marked seasonal variations in their profits. Leisure and tourism is a big industry in my constituency. Almost by definition, it is highly seasonal, with profits tending to be made in the summer. Similarly, many retailing companies, particularly the larger ones, make most of their profit in the run-up to Christmas. That is particularly true of companies that sell discretionary items such as jewellery or greetings cards.
The system of corporation tax payments laid down in the Bill makes no provision for seasonal variations. If a company makes most of its profits towards the end of the financial year, it will be asked to pay tax on profits that it has not yet earned.

Mr. Geraint Davies: Why does the new clause refer specifically to the retailing industry, and not to industries with seasonal variations in profitability, including tourism? Does that have anything to do with the fact that the shadow Chancellor has an interest in retailing, as do other hon. Members who were on the Standing Committee?

Mr. Heathcoat-Amory: That was not a tremendously telling intervention. As the hon. Gentleman will remember, we discussed seasonality in Committee. I regretted very much at the time that the hon. Gentleman failed to participate in the debate. I am glad that we can, perhaps, look forward to a contribution from him now. We are restricted in the new clauses that we can table on Report. We have chosen the retailing sector to illustrate the problem. If, as I hope, the Paymaster General accepts what we have in mind, he can easily widen the concept to bring relief to manufacturing, processing and service companies that are similarly affected. We have chosen the retail sector because it illustrates particularly well the problem that we are trying to deal with.
It is accepted that many companies have a seasonal variation in their profits. The requirement to make interim regular payments that bear no relation to how the profits are made is inequitable, forcing companies to pay tax on profits that they have not yet earned.

Mr. Hammond: Does my right hon. Friend agree that the provision might require a company to borrow money

to pay tax if its revenue pattern was highly seasonal and it did not have great reserves out of which to make the payments?

Mr. Heathcoat-Amory: That is indeed the case. Such companies may make little or no profit during the first six or nine months of the financial year and they will have to borrow money to fund their tax payments. In the final three months of the year, when they make most of their profits, they will be able to repay the money, but they will have lost the interest.
When we debated the issue, the Paymaster General seemed sympathetic to our case. He correctly pointed out that the regulations on the mechanism and timing of payments are out for consultation; that consultation period does not end until 15 July. However, we do not need to wait until 15 July to know what companies want. The British Retail Consortium has already submitted its ideas for relieving its members of the burden.
We have learnt the hard way during the passage of the Bill that, although the Government may express sympathy in Committee, they do nothing about the problem on Report. New clause 1, which we have just debated, was a good example of that. The Paymaster General said that he entirely understood the plight of poorer, non-taxpaying pensioners who were not receiving their dividend tax credits. He said that something would be done about that and that he would return to the issue on Report, but he did not. No amendments or new clauses were tabled until we raised the subject, in an attempt to get the Government to deliver on the sympathetic noises that they made upstairs.
We are in the same danger in this debate. In Committee, the Paymaster General said that he was minded to look at the British Retail Consortium's suggestions, and might respond in due course. Here is an opportunity to make him do so. If not, the consultation period will end, the Government will make up their mind and they will propose regulations that this House will never scrutinise in any way because they do not provide for any affirmative vote by this House or any scrutiny by any Committee.
A theme of the Bill—on which we have commented many times—is that there is far too much reliance on Treasury regulations, promulgated by the Treasury according to its own assessment of the situation, which may or may not bear some relation to assurances given earlier. We shall never again have an opportunity to express an opinion, let alone to vote on the matter.

Mr. Love: I apologise to the right hon. Gentleman for inadvertently calling him "my right hon. Friend" earlier. I assume that he will take that comment in the spirit in which it is meant. Does he consider the new clause to be woolly, in that it refers to having
special regard to the trading patterns and profitability of the retailing industry"?
What are we supposed to make of that? Will not the net effect of the new clause simply be to increase the complexity of the regulations about which the Opposition are complaining?

Mr. Heathcoat-Amory: No, that is not the case. The British Retail Consortium would not have proposed the idea unless it thought that it would be of advantage to its


members. Retailers do not believe that the measure will bring additional and unnecessary complexity. This is a modest way in which the Government can respond to the corporate sector and undo some of the damage that the rest of their corporation tax proposals will do.

Mr. Hammond: Does my right hon. Friend recall the hon. Member for Edmonton (Mr. Love) complaining in Committee about woolly clauses in the Bill, requiring reams of regulation to be proposed by the Government thereafter?

Mr. Heathcoat-Amory: My hon. Friend is absolutely right.
The question of regulation is a constitutional issue. It has been noticed by outside commentators that there is greater reliance on the use of secondary legislation in the Bill, and that is highly undesirable. The Law Society commented that, in some cases, it was unprecedented. A new source, which we have not quoted—because I have only seen its submission recently—is the Institute of Chartered Accountants of Scotland, which said:
A reading of this Finance Bill results in the feeling that much of it is missing. Continually, clauses simply provide for a delegated authority to permit regulations to be drawn up.
It points out that substantive issues of taxation—the amount of tax, when it is to be paid and by whom—are not in the Bill either. They are delegated to subsequent secondary legislation which, in most cases, will never be debated at all. The institute expressed
very strong reservations about the wider use of regulations.
If that outside commentator expresses strong reservations, how much more should we—as Members of a Parliament that came into existence to guard the taxation of the people and to ensure that it did not fall into arbitrary hands?

Mr. John Swinney: Is the right hon. Gentleman aware that the Institute of Chartered Accountants of Scotland expressed similar concerns about the attitude of the Government during the passage of the Scotland Bill? It was concerned that many aspects of the Bill were being left to regulations, including important points such as, for example, the definition of who would be eligible to be a taxpayer under the Scottish Parliament. That matter was left in a rather woolly state by the end of the passage of the Bill, and it is the subject of regulations that we have not seen.

Mr. Deputy Speaker: Order. We would be going somewhat wide of the amendment if we started to discuss that intervention.

Mr. Heathcoat-Amory: I had better not be drawn too far down that line, but I think that it would be in order to relate that point to the new clause, which attempts to correct exactly the problem to which the hon. Member for North Tayside (Mr. Swinney) has drawn our attention—the use of primary legislation to give delegated powers to the Government to propose secondary legislation which will never be scrutinised.
The measures have been called Henry VIII clauses, and we debated them in Committee. Henry VIII used the statute of declarations to ensure that pretty well anything he said had the force of law. He could amend or repeal

any statute simply by issuing a proclamation. The Government are getting perilously close to that in the Bill—and, indeed, in the clause dealing with corporation tax. They give to the Treasury almost unparalleled powers to amend any statute which it sees fit to bring into the new system of corporation tax.
Clause 30(5) states that regulations under the section
may make such modifications of any provision of the Taxes Acts, or … may apply such provisions of the Taxes Acts, as the Treasury think necessary or expedient for or in connection with giving effect to the provisions of this section.
That is an extraordinarily wide provision. It is really saying that the Treasury can do what it likes if it thinks that it is bringing the system of corporation tax into effect. The point is that we shall never have a further opportunity to give an opinion on the matter, still less to vote on it.

Mr. Gibb: Are not the regulations in connection with quarterly corporation tax payments different from other Treasury regulations, which deal with the administration of tax, in that the details of the regulations will determine the burden of tax that will be paid by companies? The timing of the payments is part and parcel of the burden, and, therefore, the regulations go much wider than previous Treasury regulations.

Mr. Heathcoat-Amory: My hon. Friend is, characteristically, entirely accurate. The £2 billion extra burden of taxation, to which I have referred, is not provided for in the Bill, and is contingent on regulations that we have not seen. How can this House pass a Bill which apparently gives effect to the Government's arithmetic, but does not include it?
I urge the House seriously to consider accepting the new clause, which would go some way towards correcting the problem by creating the possibility of future regulations. We would then, at least in one small way, lay down in the Bill what the Government must do to relieve the burden on the retailing sector of the economy. That is a modest request. It does not go nearly far enough to correct the damage in the Bill but, at the very least, it would bring relief to a sector of the economy that will suffer because of a failure by the Government to understand the seasonal pattern of its trading activities.

Mr. Derek Twigg: Given the fact that the right hon. Gentleman has shares in a retailer, and the shadow Chancellor is a director of Asda, how seriously can we take their comments? Are they in someone's interests, or is the right hon. Gentleman speaking to a genuine new clause on the retail industry?

Mr. Deputy Speaker: Order. Right hon. and hon. Members are responsible for declaring their own interests. It is not a matter for debate here in the Chamber.

Mr. Heathcoat-Amory: That was a stupid intervention by the hon. Member for Halton (Mr. Twigg)—something that is becoming characteristic. It might interest hon. Members to know that the hon. Gentleman has said more during this debate than he did during the entire Committee proceedings when we scrutinised a 400-page Bill, which closely affects his constituents and on which he remained completely silent. We debated retirement relief and matters of taxation adversely affecting small and medium businesses in his


constituency—we know that because letters from them were copied to us—and the hon. Gentleman remained silent. Now he pops up to make an entirely irrelevant remark about a new clause tabled by the Opposition.

Mr. Deputy Speaker: Order. The matter before us is not what happened in Committee, but the new clause. We must discuss the new clause.

6 pm

Mr. Heathcoat-Amory: You are right, Mr. Deputy Speaker, and I was mistaken in giving way to the hon. Member for Halton. I shall not make that mistake again in this debate. However, I shall respond directly to his point. It may interest him to know that food retailing companies would probably be the last to get a concession from the new clause because their business is less seasonal than most. Any company selling goods will of necessity probably not experience highly seasonal variation. Companies that show a marked increase in sales around Christmas will probably chiefly benefit.
I hope that the House will give serious consideration to a modest measure to repair at least some of the damage caused by the Bill.

Mr. Flight: New clause 5 would not only protect retail industries but put the Treasury on notice in forming its regulations to consider all seasonal industries and protect their cash flow from the effects of moving to the new pattern of seasonal payments. The quarterly payments of corporation tax will have to be made in the third and fourth quarters of the current financial year before many companies have earned the profits to pay them. As we have heard, many companies will have to base their payments on predictions.
As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has pointed out, the new clause is a minor attempt to correct the poor history of this Government wading into massive reform of the corporation tax system without considering all the implications. First, foreign income dividends were forgotten about, and, in changing the system, the Government proposed quarterly payments. In doing so, they forgot that such payments would bring forward the payment of tax, and that many businesses have extremely seasonal patterns of trading.

Mr. Gibb: My hon. Friend is generous to the Government in saying that they forgot that the proposal would mean bringing forward corporation tax receipts. I put it to him that the Government did not forget; they were fully aware of that by-product of the measure and they wanted the revenue.

Mr. Flight: I am sure that the Government do want the revenue and, as I shall describe, the objective of the measures is massively to boost revenue without the citizens at large being aware that that is occurring. I suggest also that the professionals in the Treasury often have to work on these matters in haste without thinking through all the detailed implications of the changes. I refer in particular to the failure to consider the effect on foreign income dividends, which my hon. Friend described in great detail when we considered the previous Finance Bill.
One intended effect of new clause 5 would be to allow firms simply to pay less corporation tax in the first and second instalments and more in the later instalments. That is analogous to the system that obtains in the USA.
The crucial point is not only the additional tax that will be paid—I shall move on to the total of that later—but that we are moving into a phase of economic downturn. We do not know whether that will be a recession, but it is unwise of the Government to impose additional, major cash-flow burdens on business after they have already substantially put up taxation in other ways. It has been pointed out that it is also pro-cyclical and is likely to encourage the worst aspects of the economic cycle.
The problem that new clause 5 aims to tackle arises also from the Chancellor's penchant for disingenuous headline grabbing when presenting the Budget. He made a bold announcement in the House that corporation tax was coming down by one percentage point. Only later did we learn that the true effect—the cash flow effect and the figures recorded in the Red Book—is a substantial increase in the taxation being paid by companies. The measure adds £1.6 billion of taxation in 1999–2000, £2 billion in 2000–01 and £3.1 billion in 2001–02, which is a total of £6.7 billion over those three years. Substantially more taxation will be paid than will be cut by the reduction in corporation tax by 1 percentage point to 30 per cent.

Mr. Love: The hon. Gentleman quoted from figures for the next three years, but did not quote those for the following years when the net effect will be to reduce the burden on companies. Perhaps he could set the record straight.

Mr. Flight: Self-evidently, the effect on the rate of corporation tax will eventually be that it is 30 per cent. rather than 31 per cent., but, equally self-evidently, for the next three to four years, there will be a substantial increase in the burden of taxation paid by companies. I repeat that the increase is being imposed at a point in the economic cycle when it may be extremely negative for employment and investment.

Mr. Gibb: Another point is that the Government's guarantee that they will not increase corporation tax extends only to the end of this Parliament, so by the time the measure becomes revenue-neutral or begins to give back money to the companies, the Government—if they are re-elected—could easily raise the rate of corporation tax.

Mr. Flight: My hon. Friend makes an important point. We hope that the country will be saved from the re-election of a Government who mess around with our tax system as foolishly as they have done over the past two years. My hon. Friend is correct to point out that, faced with potentially deteriorating tax revenues as the cycle turns negative, there is no guarantee that, if re-elected, this Administration would not increase the rate of corporation tax. He is correct: the net effect can be judged only between now and the next election, and it will be a substantial increase in the amount of taxation paid by companies.
As my right hon. Friend the Member for Wells pointed out in describing the background to the changes, they arise from the sad change to the imputation system of taxation


and the consequent substantial tax on savings. It has been doubly unfortunate that the tax on savings has produced a fall of almost 2 per cent. in the rate of savings at a time when any economist would say that we need a rise in savings. That fall has produced a rise in consumption.

Mr. Deputy Speaker: Order. We really must keep to the new clause.

Mr. Flight: Thank you, Mr. Deputy Speaker.
We are trying to correct one of the minor mistakes resulting from the changes to corporation tax that have been introduced over the past two years. Those changes have had a negative impact on the economy, and threaten to have a negative micro-impact on seasonal industries such as the retailing and tourist sectors, which will suffer from the new quarterly payments of corporation taxation. Reforms introduced in a hurry and designed to raise revenue have ended up creating the sort of problems with which the new clause is intended to deal.
Neither the new system of payment nor the increase in corporation taxation has attracted much attention—the public are scarcely aware of them. The corporate sector has been cash-rich for the past three years; its cash flows have been able to absorb the rise in taxation that has been imposed. But over the next two years, companies' cash flows will swing the other way. It is then that these corporation tax measures will really bite. It is then that retailers and their employees will pay the price for the changes. The very least we can do to counteract what the Government have been doing is to endorse the new clause, which attempts to cushion the cyclical industries from a tax change that will be a major cause of unemployment.

Mr. Derek Twigg: The hon. Gentleman has referred several times to cyclical industries, in the plural. Why, then, does the new clause relate only to retailers? That question was not answered when it was asked earlier.

Mr. Flight: The answer has already been given: the new clause is specific and refers to how the new quarterly payment system will be brought into effect by the Treasury. The intention is to persuade the Treasury to draft the relevant regulations with reference to all cyclical industries, retailing being the main one.

Mr. Edward Davey: The debate has wandered fairly wide of the subject matter so far. Both the right hon. Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for Arundel and South Downs (Mr. Flight) knocked around the issues surrounding the introduction of a new system of corporation tax payments. Indeed, they reminded me of some of the world cup football matches in which the back lines have played for time during the last five minutes of the game. Of course we hope that the England team will be doing just that in a few hours' time—playing for time before their victory.
The debate has been enlivened by a few lunges from the Government Benches which proved in the end rather untimely. One such lunge was made by the hon. Member for Croydon, Central (Mr. Davies), who is not in his place, at the right hon. Member for Wells. The intervention concerned cash flows, but the hon. Gentleman completely missed the point.
The introduction of the new system has been driven by financial motives. The Government have realised that there is a time cost for tax payments, and have sought to recoup it for themselves. They will get the benefit of this revenue, and the corporate sector will be the worse for it. In Committee, the hon. Member for Croydon, Central told us of his experience of multinational companies, so he will know how many companies have built their profits on float income. The time cost of capital is an important factor in any business operation, as the Government have apparently realised—although they now seek the benefit for themselves.
The short-term financial motives of the Government apart, there is nothing wrong in principle with the new system; but the way in which the Government have introduced it has given rise to suspicions of their motives. A new system throws up new problems—problems of implementation, problems for the corporate sector, problems that were not relevant to the previous system. It may throw up problems that the civil servants have never before had to consider.
6.15 pm
The new clause highlights just such a problem which did not occur under the old system—the problem of seasonal profits. Profits vary throughout the year, and the new system of corporation tax payment will serve to highlight that fact, particularly for businesses that generate most of their profits in the second half of the year: most notably, retail companies that make most of their profits in the last quarter.
The new system of paying corporation tax in even quarterly instalments, based on forecast taxable profits for the current year, penalises seasonal businesses such as retailers that do not earn their profits evenly. Because they will have to pay tax up front, they will be required to pay it even before the profits have been earned. That may force them to borrow, which will be a significant extra cost. Therefore, the new system discriminates against companies whose business activities happen to be seasonal, and there would seem to be no justification for such discrimination—we heard no grounds for it in Committee.
The cost of borrowing will be much higher for private sector firms than it would be for the Government. Companies with seasonal profits may be given a higher risk assessment because it will not be known whether Christmas, for instance, will turn out to be a good trading period.
The right hon. Member for Wells mentioned businesses whose profits are linked primarily to the festive season—jewellers, for instance. My hon. Friends and I have been approached by Signet plc, a holding group for a number of high street jewellers whose profits are earned almost entirely in the last two or three months of the year. They will be particularly affected by the new payment system. Toy retailers and companies selling cards and Christmas decorations fall into the same category. Fireworks manufacturers, who would not be covered by the new clause, as they are not retailers, will also be adversely affected by the failure to take seasonality into account in the new system.

Mr. David Ruffley: Is the hon. Gentleman aware of the argument of some Labour critics that it would be open to retail industries, especially those


who rely on big Christmas sales, simply to change their year end to get around the seasonality problem? Will he explain why that argument is so fallacious and defective?

Mr. Davey: As I understand it, the payments must be made in equal amounts in the four quarters, so changing the year end would not get around the problem.
Other industries are affected by seasonality—tourism has been mentioned. I do not understand why such firms should be punished because they operate in a specific marketplace and undertake a particular business activity. The state takes money from individuals and businesses to finance its activities on behalf of the community, and it should make it as easy as possible for companies and individuals to pay tax. It should not discriminate against some individuals or some businesses in the way it does.
The right hon. Member for Wells said that draft regulations were out to consultation. We have heard that, in different places, the Paymaster General has expressed sympathy for those who will be affected by the problems that are being outlined and highlighted in the debate. He said:
We shall re-examine the draft regulations in the context of the
British Retail Consortium's
proposals and we shall inform the House of our view."—[Official Report, Standing Committee E, 19 May 1998; c. 254.]
I hope that tonight we shall hear not just sympathetic words, but promises of action. The consultation period may end on 15 July, but the Paymaster General must have heard many representations—not only tonight, but well before tonight—about people's worries about his proposed system of payment. He would not exceed his remit if he gave a hint of the Government's thinking. If he feels unable to do so, will he tell us when the Government will publish their response to the consultation? Will it be in the depths of the summer, when the House is in recess, so that the House cannot hold the Government to account? We should like a date from him.
The Paymaster General may want to accept new clause 5 tonight, but I doubt it. He may argue that it is a partial solution to the problem that he is apparently so sympathetic about; I am sure that Conservative Members would admit that it is indeed partial. However, at least he could respond to the spirit of the new clause. I have often argued that Ministers should answer the spirit of the debate, and he should do so tonight.

Mr. Gibb: Given that the new clause merely enables the Government to draft their regulations on the basis of the words in the new clause—that is, it enables them to include some indication that they are taking into account the seasonal effects of retail industry—surely there is no technical reason why the Paymaster General cannot accept the new clause. All the details and planning that the Government need to do can still be done in the regulations.

Mr. Davey: The hon. Gentleman has a point, but it is important that we do not allow the Government to get away with limiting allowances for seasonality to the retail industry; other industries also suffer from the problem.
I hope that, in reviewing the regulations and replying to the debate, the Paymaster General will address some of his comments not only to new clause 5, but to the system proposed by the British Retail Consortium. That proposed add-on to the Government's new system of corporation tax payments suggests that the Government lay down some criteria that would help us determine seasonality, possibly borrowing from the United States system, so that if 70 per cent. of a company's profits were earned in the latter half of the year, that would enable it to elect to pay its corporation tax on actual, not forecast, profits. That 30:70 per cent. split works in the United States; I cannot see why the Government cannot borrow from the way in which that system operates.
The Government may argue that the United States corporation tax system is famous—or infamous—for its other complexities, and that it imposes heavy burdens on United States companies. We are not arguing for borrowing the United States corporation tax system lock, stock and barrel. We would not want the onerous burdens that it places on United States companies to be imposed on British companies, but it would be missing the point to use that argument against borrowing something like the 30:70 criterion. A small element borrowed from the United States system would significantly improve the proposed system of corporation tax payments. We believe that there is no need to imitate the US system point by point; one can borrow the best and leave the worst.
I have spoken to members of the British Retail Consortium, who are in no doubt that they would be more than happy to bear any extra burden placed on them by giving them the option to elect to pay on the basis of actual, not forecast, profits. We are talking about companies that have professional tax departments. In the main, they are large companies, which are more than capable of dealing with any extra burden. To use the words that the Economic Secretary is most likely to utter on the subject, it would be "nae bother" for them to deal with such burdens.
The Government have said that they are anxious that the system that they propose retains simplicity—that we do not complicate it. That argument is not well founded, given the Government's other actions on the Bill. They have introduced complexities into tax legislation, especially with their proposal on capital gains tax, and those complexities must be handled by individuals. The complexities that would be needed to give some sort of seasonality in the system for corporation tax payments would be simple by comparison with the complexities that the Government are introducing on CGT. The argument that the Government need to retain simplicity in the system does not stand up to examination.
I urge the Minister to say that the Government retain an open mind on seasonality, and that they will consider the issue, as it is a serious one for many of our country's largest and most successful companies.

Mr. Quentin Davies: This has been an extremely interesting debate. It has revealed something very significant about the Government's thinking, and it has strongly confirmed an impression that many of us have gained about the Government's fiscal policy. It has revealed that the Government do not understand the concept of cash flow. A most revealing intervention by a Labour Member made that absolutely clear.
Companies are more likely to fail for cash flow reasons than for any other reason. Cash flow is vital to a company's success, and cash flow planning is especially vital to the success of any small or growing company. Therefore, the idea that one can, with complete levity, say, "Oh, the £2 billion additional burden is just a cash flow burden; actual rates of tax have not changed," reflects, I am afraid, a complete lack of familiarity with some of the essential elements of business management, which is very disturbing in a Government in any country, especially in our own.

Mr. Hammond: My hon. Friend cannot know this and will be disappointed to hear it, but the hon. Member for Croydon, Central (Mr. Davies), who made that intervention—he is not in his place—is one of the few Labour Members who claim to have real experience in business. Is it not utterly depressing that he displayed such a lack of understanding?

Mr. Davies: My hon. Friend has said it all, but, with respect to him, I do not think that we should crow unduly. It may give Opposition Members cause for satisfaction and reassurance to see the Government's obvious failings and shortcomings, but the country will pay the price for that incompetence and inexperience, and I am afraid that the price will be paid by a very large number of businesses, and by those employees and investors whose futures depend on them.
What the Government are doing is comparable to what would happen if, for example, a company suddenly said that it would double, unilaterally and arbitrarily, the period of settlement of its invoices. That would create a great cash flow problem for the company's suppliers. Alternatively, the company might demand that all its customers pay in advance. That would create cash flow problems for its customers. In competitive markets, it might not matter unduly if a company behaved in that way, because the suppliers would decline to supply it or would supply it only on more onerous terms, and the customers would place their business elsewhere.
6.30 pm
However, if a monopoly business behaved in that way, and could enforce on its suppliers or its customers whatever payment terms it chose arbitrarily from time to time to enforce, the situation would be exactly comparable with that of a Government—a tax-raising authority—who arbitrarily said that all tax payments must be brought forward, and the hell with the resulting cost to the companies paying the tax.
That is a serious matter, which leads directly to the second point on which the debate has been particularly revealing. It has strongly confirmed a clear impression that the whole country has begun to appreciate: that the Government believe in surreptitious taxation. They have launched a sinister tradition of surreptitious taxation. It is easy to see that that will lead to fiscal and other forms of tyranny. It is arbitrary and means that the British taxpayer, who, on the whole, believes that Governments act in reasonable good faith and that Government pronouncements can be taken at face value, in accordance with the normal meaning of the English language, is learning that he was wrong. What you see is not what you get with this Government.
The Government believe that they have found a way of taxing the public and taxing business, and then being able to deny that any taxation has taken place. That was the basis of the pensions tax—the abolition of the dividend tax credit. The Government thought that they were extremely clever. They get £5 billion a year, which they are indeed taking, out of pension funds, and they thought that the public would not quite understand that their prospect of receiving a pension in retirement had been reduced by exactly the same figure.
We have seen the same thing today. The Government try to deny that companies face an annual burden of £2 billion more of corporation tax, even though, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, that figure derives from the Government's Red Book. They say that corporation tax has not been increased—indeed, that it has been reduced. The debate has provided a depressing insight, but we should be realistic and recognise how the Government have operated over the past year, and how they no doubt intend to continue for the rest of their mandate.
Two anomalies and unfairnesses arise from the changes in corporation tax, the abolition of advance corporation tax and the decision to levy quarterly payments on companies to replace the existing system of corporation tax. They are two sources of economic problems, both potential burdens on business. Although they are related, they are separate and should be considered separately.
The first is the issue of predictability. The Paymaster General and I had an earlier exchange on the subject. I suggested that, however clever one was and however well run one's business was, it was not possible to predict how things would work out over the next year. The hon. Gentleman, who has great faith in his business abilities, said that all companies produce business plans. There was something of the dialogue of the deaf proceeding between us.
The Paymaster General must acknowledge that, however well managed a company is, and however convincing its business plan may be on the basis of assumptions made before the beginning of a financial year, that plan is only as good as the assumptions on which it is based. If the assumptions change as a result of some exogenous and unpredicted event, the business plan may no longer be valid.
Who could have predicted the collapse in Asia? Is the hon. Gentleman going to tell us that he predicted it? I shall be happy to give way, if he wants to tell the House that he knew a year ago that the Asian markets would collapse and the Asian countries would devalue massively. That is an example of an unpredicted and exogenous shock. There could be many more shocks much nearer home, of a more sectorally or geographically limited kind, which the hon. Gentleman can no doubt think of as well as I can.
The issue of predictability arises immediately, if companies must make payments on the basis of their anticipated net revenues and, therefore, taxable income for a given year, when those predictions may prove to be unsound retrospectively. That is a pro-cyclical attack on the company. My right hon. Friend the Member for Wells sometimes corrects me for using technical language in Finance Bill Standing Committee debates, but I am glad that he used that term earlier. It is not a particularly technical term, but it is the right one.
A pro-cyclical burden means that, if the company's profits are less than anticipated because of some unpredictable event, they will be further reduced because the tax charge is excessively high, by virtue of the mechanism that the Government deliberately and thoughtlessly introduced into our tax system. Pro-cyclical burdens are a very bad thing. It is extraordinary that one should have to give the Government such an elementary lecture.
It should be the concern of a good Government to avoid pro-cyclical burdens, whether in macro-economic management, which the Government have utterly failed to do—I shall not be drawn down that line as it is not directly germane to the new clause—or in the micro-economic area. We know that tax changes are enormously important because of their impact on the micro-economy, where the essential decisions on investment, resource allocation and wealth creation are made. The issue of predictability is important. It is fundamentally unsound to make tax payments premised on any assumption at all about future revenues.
The second issue, which has not always been separated in the discussion, is seasonality. Seasonality may be entirely predictable for a retail business. As has been pointed out in several contributions, not only retail businesses are seasonal—the tourist industry is a clear example. Under the measures proposed by the Government, the fact that seasonality is predictable will give businesses no relief from making an excessive tax payment early in the year, when their cash flow may be weak or even negative.
A perfectly sound business may make no money at all in January, February and March, but will still be forced to make a substantial tax payment, because it expects to make some money between October and Christmas. That is pro-cyclical. It places a larger cash flow burden on the company than it would naturally face as a result of operational conditions. That cannot be sensible. I beg the Government, even at this eleventh hour, to think again.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) referred to the way in which the Americans addressed the matter. They have never had an advance corporation tax system, so they have lived for a long time with the issues that the Government now face. They have a system under which, I gather, there is a 30:70 criterion. My hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) is the expert in these matters. Companies that expect to make more than 70 per cent. of their profits in the second half of the year can opt to make tax payments that are loaded at the back end of the year.
Will the Paymaster General, for once, give us clear answers to some serious questions? To what extent did the Paymaster General look at the American system and other systems around the world before he took a decision on this matter? What would be the cost to the Revenue in this country of implementing a system along the American lines? Let us assume that we introduced the American system exactly: a 70:30 breakdown. What would it cost? I am sure that the Paymaster General's officials have calculated that figure—if they have not, the Government have not done their homework and we

should hear about that before we vote on the measure. When we know the answer to that question, it will give us a clue about the heart of the matter.
This measure is about advancing the Government's revenue in this Parliament, and hang the consequences for British industry, for the British economy and for our future wealth, prosperity and employment. It happens to be convenient—I wonder why—for the Labour Government to garner all the resources they can in the next two or three years in order to affect a greater measure of economic competence and a better record of economic achievement than the facts will justify under any circumstances.

Mr. Hammond: I shall add some brief comments to those of my hon. Friends. [HON. MEMBERS: "Hear, hear."] I see that I have managed to introduce a note of consensus into the debate, as my announcement meets the approval of Government Members.
Whatever the Government say, the changes to the corporation tax system are revenue-driven. The Government talk about modernising the system, but it is clear that that is a sham and a smokescreen for an exercise in building a war chest through a one-off shift in the pattern of revenue, bringing forward into this Parliament revenues that Government would otherwise have enjoyed later. The measures that we have considered in Committee will require companies to make payments quarterly. As my hon. Friends have outlined, that gives rise to two quite distinct and separate problems. First, there is the problem of estimation. Companies will be required to make payments throughout the year based on their predicted profits for the whole year.
My hon. Friend the Member for Grantham and Stamford (Mr. Davies) explained eloquently the difficulties involved in doing that. The Paymaster General told us in Committee that all businesses are able to predict their profits and that they have mechanisms for doing so. However, if the Paymaster General reflects carefully, he will acknowledge that many companies have failed to predict their profits accurately and effectively. Retailers who depend heavily on seasonal profits are one notable group that have failed, as a result of the large fluctuations that occur at the year's end, to predict accurately the profits that they will enjoy over the whole year.
If a retailer gets it wrong, overestimates his profits and begins to pay substantial corporation tax earlier in the year, only to find that, because of a downturn in business, he is squeezed later in the year, he will be doubly jeopardised. He will have to live with the cash flow burden of having made those payments earlier in the year. However, if a retailer makes the opposite mistake and underestimates his likely profits for the year, he will face a penal regime which requires him to pay additional penalties when making up those payments later. Companies will be required to perform an exact and precise exercise in an area where history and experience suggest that it is not possible to do so with any accuracy.
The second problem that companies will face is much more obvious—the impact on their cash flow. The proposed new clause focuses particularly on the retail sector, in which a substantial number of companies have seasonal patterns of cash flow and profitability. Those companies that make advance corporation tax payments during the earlier part of the year will not only face


making those payments but, because of the seasonal nature of their businesses, typically invest large sums to build up stocks for their busy period.
Companies involved in the jewellery, toy, Christmas card or Christmas decoration businesses do not operate for only two or three months: they operate all year round. Christmas crackers are manufactured in January and February and are financed and stockpiled. That stockpiling represents a heavy drain on the cash flows of those companies. The Government propose to pile an additional burden on that cash flow strain by requiring those companies to make payments during a lean time in anticipation of profits that they may or may not make later in the year. According to my definition, that amounts to kicking a man when he is down.
The hon. Member for Croydon, Central (Mr. Davies) apparently failed to understand—although my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) did his best to explain it in simple terms-that, if we ask a company to pay £X million to the Treasury in January or June, that is £X million that that company cannot spend on investment in plant and equipment or on working capital for its business, thus generating jobs and prosperity in the economy. That is common sense, and it is not much to expect of the Government that they should make special provision in the most exceptional cases for companies that have seasonal cash flow and profitability patterns.
6.45 pm
We know that the draft regulations are out to consultation. The Paymaster General will no doubt tell us in a moment that, when he has completed that consultation, he will amend the draft regulations if he believes that there is a case to answer. However, we are anxious that the Government should state in fairly broad terms in the Bill that they intend to have regard to the special circumstances of seasonal retailers. It is not good enough that the regulations procedure is being used once again—even at the draft stage—to avoid scrutiny in the House of the Government's proposals. The Government will be allowed to do their dirty work behind the scenes at the regulations level. I urge the Government, even at this late stage, to rethink the measure.

Mr. Gibb: I shall explain briefly the problem that the Government have created. Quarterly payments must be paid in months seven, 11, 14 and 17. That means that, in month seven of the current accounting period, a company must determine the profits on which its corporation tax is payable. It must then apply all the corporation tax rules, including the deductible and non-deductible items, to determine its tax bill—and it is still only seven months into the current accounting period. The company must then pay its first quarter amount based on a quarter of the bill.
The problem facing the retail sector is that much of the activity that determines its profits will not have occurred in month seven—or indeed in months eight or nine—of the accounting period. [Interruption.]

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. If Labour Members wish to conduct a conversation, I would prefer that they did so outside the Chamber.

Mr. Gibb: Thank you, Mr. Deputy Speaker.
The figures of retail companies, whose profits are determined in the last two or three months of the year, could fluctuate wildly. It is imperative that, in drafting the regulations, the Government come up with a new method that enables the retail sector to have some flexibility when calculating its profits for the full year. The profits that are determined in November or December could differ wildly from those estimated at the beginning of the year when companies must make their calculations.
My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) quizzed the Liberal Democrat spokesman, the hon. Member for Kingston and Surbiton (Mr. Davey), about why companies do not simply change their year end. That would be a way around the problem because, if their busy period were at the beginning of the accounting period, companies would know what their profits were by month seven. The determinant period—for example, January and February or November and December—would be at the beginning of the accounting period and companies would know what had happened in that busy time.
The problem is that the stock exchange will want to see quoted retail groups' results for that busy period—which will determine the whole year's profits—as soon as possible after the event. Many retail groups have January year ends and, if such companies were to change that to another period, their value on the stock exchange would markedly decline because of the uncertainty inherent in having to wait a full year before the profits were reported to the exchange.
For those reasons, I urge the Government, when they have finished their consultation process, to take into account the serious concerns of the British Retail Consortium and the retail industry throughout Britain.

Mr. Geoffrey Robinson: We have had a long and wide-ranging debate on new clause 5. I hope to emulate the consensual approach of the hon. Members for Runnymede and Weybridge (Mr. Hammond) and for Bognor Regis and Littlehampton (Mr. Gibb) in the brevity of my speech and by sticking closely to the issue.
The right hon. Member for Wells (Mr. Heathcoat-Amory) went off into his usual wide-ranging ineffectual attack on the Government's long-term measures to put right what a previous Conservative Government did wrong in the economy. However, I notice that he seems finally to have accepted the principle of the changes and is now down to criticising their implementation. I am not sure whether the same can be said for the hon. Member for Grantham and Stamford (Mr. Davies). However, generally, the Conservative party is no longer seriously suggesting that, in the unlikely and impossible event of its ever being in government again, it would repeal the changes that we have introduced, be it the independence of the Bank of England, the code for fiscal stability or the abolition of tax credits to make a level playing field to encourage investment.
The Government have largely won the argument. There is no real argument for going back to an imputation system. No one will do that. There is no real argument for ending the operational independence of the Bank of England and returning its powers to the Treasury. The issue before us is the narrow point in new clause 5. Before I deal with that, there are one or two other things that I must say, particularly on secondary regulation, a matter to which Conservative Members return with boring regularity.
All we have had—it is a pity that the quality of debate among Conservative Members has sunk to this—is a rehash in general and in detail of everything that was said in Committee on the Floor of the House and upstairs. We have had no new ideas from them whatever, other than a grudging final acceptance of the correctness of our approach to these matters. [Interruption.] The hon. Member for Bognor Regis and Littlehampton shakes his head, but is he seriously saying that he would rather we returned to a system of tax credits and advance corporation tax?

Mr. Gibb: The hon. Gentleman has completely ravaged Britain's corporation tax system solely because, in July, the Government wanted to raid Britain's pension funds to the tune of £5 billion a year. That is what we are paying for with these new complex provisions.

Mr. Robinson: The stock market is standing higher than on the day we took office, and the country continues to do well.
The Conservative Government's last three Finance Bills provided more than one dozen sets of regulation-making powers covering direct taxes alone. That is the extent of regulation under the previous Government. Three quarters of those regulations included powers to modify existing provisions in the taxes legislation. We need no lessons from Conservative Members on secondary regulations. I beg them to grow up in that respect and see that we are a Government who respect the proper prerogatives of this Parliament. The hon. Member for Bognor Regis and Littlehampton well knows that, although the regulations will be introduced under the negative resolution procedure, hon. Members can pray against them.
The hon. Member for Grantham and Stamford has a captivating interest in the American system. If we were to adopt that system en bloc, a high proportion of companies would pay the whole of their tax within the year, instead of just half of it as happens under the system that we have adopted. We considered the American system, but we have gone for one that is much better from that point of view. Moreover, our system includes a relatively small number of companies. We consulted on who should come within it and excluded the small and medium sectors.
I am looking to see whether Conservative Members have made any new points to which I should reply, but I cannot find any.
The new clause simply returns to an issue with which we dealt during the debate on new clause 30 in Committee of the whole House and again during the debate on amendment No. 8 to clause 36 in Standing Committee. As I made clear on both those occasions, the regulation-making power provided by clause 30 is already sufficiently wide to allow for the regulations governing the payment by large companies of their corporation tax

by instalments from 1999 to include special rules for companies with seasonal trades. Therefore, the new clause is unnecessary, otiose and as useless as the Opposition.

Mr. Hammond: Is the Paymaster General, then, giving the House a commitment now that those regulations, when they are finalised, will include special provisions for retailers with highly seasonal patterns of profitability?

Mr. Robinson: No, I am not saying that. I am saying that the regulations are capable of doing that, so we do not need the new clause.
Much has been made by the Opposition of the alleged plight of retailers and others with businesses that have seasonal peaks and troughs in their profits, but many retailers do not have particularly seasonal trades. For example, I understand that supermarkets selling food—in fairness, this point was made by Conservative Members—earn their profits fairly evenly during the year, and many other retailing businesses are carried on by small or medium companies or by individuals, and so are not affected by the introduction of instalments.
I am aware that some large companies with retail businesses are quite highly seasonal, with sales, and therefore profits, peaking around Christmas and at sale times. The hon. Member for Runnymede and Weybridge mentioned some of them and obviously knows something about that sector. If that causes them to get their instalments wrong so that they pay their corporation tax late, they will be charged interest, but that will just reflect their late payment of corporation tax, and their use for a while of money that should have been paid over to the Exchequer. Similarly, if they pay too much corporation tax by instalments, they will get the extra back with interest. As Opposition Members know, the ratio of interest between what the Government pay and are paid has been brought into close, reasonably commercial proximity.
The Opposition have suggested that companies with seasonal profits should be allowed to pay their instalments based on actual tax-adjusted results for the previous six months. I think that that is the suggestion of the British Retail Consortium, which would confine it to companies consistently making less than 30 per cent. of their profits in their first half year. However, that would help few large companies, because few can consistently make upwards of 70 per cent. of their profits in the second half of the year, and it would be difficult to police.
This is simply another attempt by the Opposition to return to an issue that has already been thoroughly explored. I have said before that I am anxious to keep the instalment regime as simple as possible. It is no good the hon. Member for Kingston and Surbiton (Mr. Davey) saying that, because the Government could not obtain in aspects of other legislation the simplicity that we would have wanted, it does not matter in this case. That is a perverse argument. The hon. Gentleman would be surprised at the extent to which we have achieved simplification in many areas, and, if we can obtain it, we must clearly go for it.
Introducing special rules for retail companies would inevitably add considerable complexity to the instalment rules while benefiting only a relatively small number of companies. However, we have received representations on the point which we are continuing to consider, along with


all representations received during the consultation period, ending on 15 July, on the draft regulations. We shall take all those into account and let the House know our decision.

Mr. Heathcoat-Amory: These debates are achieving a sort of regularity. Conservative Members put up an unanswerable case and the Paymaster General blusters and flusters. On this occasion, he ended up virtually accepting our case, but he spoilt it all by saying that new clause 5 was unnecessary because the regulations under the Bill already make the same provision. However, we have learnt not to accept Government intentions but to try to tie them down so that they deliver on some of their words. We debated earlier this evening a new clause which we introduced precisely because the Government had failed to deliver on an expressed sympathy for the low-paid and poorer pensioners who had been hit, and continue to be hit, by the withdrawal of dividend tax credits in the Bill. We shall press the new clause to a vote to ensure that the Government deliver on their intentions.

7 pm

Mr. Clifton-Brown: Does my right hon. Friend agree that one of Labour's hidden tax rises will be affected if the Government do not accept the new clause? In the tourism industry, for example, large hotels in my constituency with variable profit fluctuations will have to pay higher corporation tax or file higher corporation tax returns than they would otherwise have done because of the interest penalties that will endure. It will be cheaper to pay the tax in advance—which is, in effect, a cost—rather than endure the penalties.

Mr. Heathcoat-Amory: My hon. Friend has given a good example of the difficulties that businesses will face because of the Finance Bill as it stands. Our new clause would, in a modest way, relieve the ravages of Labour's high tax policy for a small sector of corporate Britain. We want to include it in the Bill, and this is our last chance to make that happen. The Paymaster General did not even refer to the fact that parts of the Bill will never be debated again because they will be relegated to secondary legislation.
I repeat that there is in the Chancellor's own Budget arithmetic a £2 billion a year increase in the effective rate of corporation tax, consequential on these quarterly payments. That is specified on page 18 of the Red Book, but it is not specified in the Bill, and hon. Members will not find any clause laying down how that sum is to be raised and who is to pay it.
Those who were Members of Parliament before us would be amazed that we are authorising a £2 billion a year increase in taxation which is to be laid down later in regulations that the House will never have a chance of debating, approving or voting against. We will betray the traditions of the House if we allow the Government to increase taxes in such a way, without giving ourselves any opportunity to express an opinion.
In a small way, through our new clause, we are ensuring that the parts of the retail sector that experience seasonal profits will have their interests at least partly protected. We have had a proper debate, which we have won, and we shall put the new clause, which should be incorporated in the Bill, to the test of a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 175, Noes 276.

Division No. 319]
[7.2 pm


AYES


Allan, Richard
Gummer, Rt Hon John


Amess, David
Hamilton, Rt Hon Sir Archie


Ancram, Rt Hon Michael
Hammond, Philip


Arbuthnot, James
Hancock, Mike


Ashdown, Rt Hon Paddy
Harris, Dr Evan


Atkinson, David (Bour'mth E)
Harvey, Nick


Atkinson, Peter (Hexham)
Hawkins, Nick


Baker, Norman
Hayes, John


Ballard, Jackie
Heald, Oliver


Bercow, John
Heath, David (Somerton & Frome)


Beresford, Sir Paul
Heathcoat-Amory, Rt Hon David


Body, Sir Richard
Hogg, Rt Hon Douglas


Boswell, Tim
Horam, John


Bottomley, Peter (Worthing W)
Hughes, Simon (Southwark N)


Brady, Graham
Hunter, Andrew


Brake, Tom
Jack, Rt Hon Michael


Brand, Dr Peter
Jackson, Robert (Wantage)


Brazier, Julian
Jenkin, Bernard


Browning, Mrs Angela
Jones, Ieuan Wyn (Ynys Môn)


Bruce, Ian (S Dorset)
Jones, Nigel (Cheltenham)


Bruce, Malcolm (Gordon)
Kennedy, Charles (Ross Skye)


Burns, Simon
Key, Robert


Cable, Dr Vincent
Kirkbride, Miss Julie


Campbell, Menzies (NE Fife)
Kirkwood, Archy


Cash, William
Laing, Mrs Eleanor


Chapman, Sir Sydney (Chipping Barnet)
Lait, Mrs Jacqui



Lansley, Andrew


Chidgey, David
Leigh, Edward


Chope, Christopher
Letwin, Oliver


Clappison, James
Lidington, David


Clark, Rt Hon Alan (Kensington)
Lilley, Rt Hon Peter


Clarke, Rt Hon Kenneth (Rushcliffe)
Livsey, Richard



Lloyd, Rt Hon Sir Peter (Fareham)


Clifton-Brown, Geoffrey
Llwyd, Elfyn


Collins, Tim
Loughton, Tim


Colvin, Michael
Luff, Peter


Cormack, Sir Patrick
MacGregor, Rt Hon John


Cotter, Brian
McIntosh, Miss Anne


Cran, James
MacKay, Andrew


Curry, Rt Hon David
Maclean, Rt Hon David


Dafis, Cynog
McLoughlin, Patrick


Davey, Edward (Kingston)
Major, Rt Hon John


Davies, Quentin (Grantham)
Maples, John


Davis, Rt Hon David (Haltemprice)
Maude, Rt Hon Francis


Day, Stephen
May, Mrs Theresa


Donaldson, Jeffrey
Michie, Mrs Ray (Argyll & Bute)


Dorrell, Rt Hon Stephen
Moore, Michael


Duncan, Alan
Morgan, Alasdair (Galloway)


Emery, Rt Hon Sir Peter
Moss, Malcolm


Evans, Nigel
Nicholls, Patrick


Ewing, Mrs Margaret
Norman, Archie


Fallon, Michael
Öpik, Lembit


Fearn, Ronnie
Ottaway, Richard


Flight, Howard
Page, Richard


Forth, Rt Hon Eric
Paice, James


Foster, Don (Bath)
Paterson, Owen


Fox, Dr Liam
Pickles, Eric


Fraser, Christopher
Prior, David


Garnier, Edward
Redwood, Rt Hon John


George, Andrew (St Ives)
Rendel, David


Gibb, Nick
Robathan, Andrew


Gill, Christopher
Robertson, Laurence (Tewk'b'ry)


Gillan, Mrs Cheryl
Rowe, Andrew (Faversham)


Gorman, Mrs Teresa
Ruffley, David


Gorrie, Donald
Russell, Bob (Colchester)


Gray, James
St Aubyn, Nick


Green, Damian
Sanders, Adrian


Greenway, John
Sayeed, Jonathan


Grieve, Dominic
Shephard, Rt Hon Mrs Gillian






Shepherd, Richard
Tyler, Paul


Simpson, Keith (Mid-Norfolk)
Tyrie, Andrew


Smyth, Rev Martin (Belfast S)
Viggers, Peter


Soames, Nicholas
Wallace, James


Spicer, Sir Michael
Waterson, Nigel


Stanley, Rt Hon Sir John
Webb, Steve


Steen, Anthony
Wells, Bowen


Streeter, Gary
Welsh, Andrew


Stunell, Andrew
Whittingdale, John


Swayne, Desmond
Wigley, Rt Hon Dafydd


Swinney, John
Wilkinson, John


Syms, Robert
Willetts, David


Tapsell, Sir Peter
Willis, Phil


Taylor, Ian (Esher & Walton)
Wilshire, David


Taylor, John M (Solihull)
Winterton, Mrs Ann (Congleton)


Taylor, Matthew (Truro)
Winterton, Nicholas (Macclesfield)


Taylor, Sir Teddy
Woodward, Shaun


Tonge, Dr Jenny
Yeo, Tim


Townend, John



Tredinnick, David
Tellers for the Ayes:


Trend, Michael
Sir David Madel and



Mrs. Caroline Spelman.


NOES


Adams, Mrs Irene (Paisley N)
Colman, Tony


Ainger, Nick
Connarty, Michael


Ainsworth, Robert (Cov'try NE)
Cook, Frank (Stockton N)


Alexander, Douglas
Corbett, Robin


Anderson, Janet (Rossendale)
Corston, Ms Jean


Armstrong, Ms Hilary
Cousins, Jim


Ashton, Joe
Cranston, Ross


Atkins, Charlotte
Crausby, David


Austin, John
Cummings, John


Banks, Tony
Cunliffe, Lawrence


Beard, Nigel
Cunningham, Jim (Cov'try S)


Begg, Miss Anne
Dalyell, Tam


Bennett, Andrew F
Davey, Valerie (Bristol W)


Benton, Joe
Davidson, Ian


Berry, Roger
Davies, Rt Hon Denzil (Llanelli)


Betts, Clive
Davies, Geraint (Croydon C)


Blears, Ms Hazel
Davies, Rt Hon Ron (Caerphilly)


Blizzard, Bob
Davis Terry (B'ham Hodge H)


Borrow, David
Dawson, Hilton


Bradley, Keith (Withington)
Dean, Mrs Janet


Bradley, Peter (The Wrekin)
Denham, John


Bradshaw, Ben
Dismore, Andrew


Brinton, Mrs Helen
Dobbin, Jim


Brown, Rt Hon Nick (Newcastle E)
Donohoe, Brian H


Brown, Russell (Dumfries)
Doran, Frank


Browne, Desmond
Drew, David


Buck, Ms Karen
Eagle, Maria (L'pool Garston)


Burden, Richard
Ellman, Mrs Louise


Burgon, Colin
Ennis, Jeff


Byers, Stephen
Etherington, Bill


Caborn, Richard
Fatchett, Derek


Campbell, Alan (Tynemouth)
Field, Rt Hon Frank


Campbell, Mrs Anne (C'bridge)
Fitzpatrickc, Jim


Campbell, Ronnie (Blyth V)
Flint, Caroline


Cann, Jamie
Flynn, Paul


Caplin, Ivor
Foster, Rt Hon Derek


Casale, Roger
Foster, Michael Jabez (Hastings)


Chapman, Ben (Wirral S)
Foster, Michael J (Worcester)


Chaytor, David
Foulkes, George


Chisholm, Malcolm
Gapes, Mike


Clapham, Michael
Gardiner, Barry


Clark, Rt Hon Dr David (S Shields)
George Bruce (Walsall S)


Clark, Dr Lynda (Edinburgh Pentlands)
Gibson, Dr Ian



Gilroy, Mrs Linda


Clark, Paul (Gillingham)
Godman, Dr Norman A


Clarke, Tony (Northampton S)
Goggins, Paul


Clelland, David
Golding, Mrs Llin


Clwyd, Ann
Gordon, Mrs Eileen


Coaker, Vernon
Grant, Bernie


Coffey, Ms Ann
Griffiths, Jane (Reading E)


Cohen, Harry
Griffiths, Nigel (Edinburgh S)


Coleman, Iain
Grogan, John





Gunnell, John
Michael, Alun


Hain, Peter
Milburn, Alan


Hall, Mike (Weaver Vale)
Miller, Andrew


Hamilton, Fabian (Leeds NE)
Mitchell, Austin


Hanson, David
Moffatt, Laura


Heal, Mrs Sylvia
Morgan, Ms Julie (Cardiff N)


Henderson, Ivan (Harwich)
Morgan, Rhodri (Cardiff W)


Heppell, John
Morris, Ms Estelle (B'ham Yardley)


Hewitt, Ms Patricia
Mudie, George


Hill, Keith
Mullin, Chris


Hinchliffe, David
Murphy, Jim (Eastwood)


Hoey, Kate
O'Brien, Bill (Normanton)


Home Robertson, John
O'Brien, Mike (N Warks)


Hood, Jimmy
Olner, Bill


Hoon, Geoffrey
O'Neill, Martin


Howarth, Alan (Newport E)
Osborne, Ms Sandra


Hoyle, Lindsay
Palmer, Dr Nick


Hughes, Ms Beverley (Stretford)
Pearson, Ian


Hughes, Kevin (Doncaster N)
Pendry, Tom


Humble, Mrs Joan
Pickthall Colin


Hutton, John
Pike, Peter L


Iddon, Dr Brian
Plaskitt, James


Illsley, Eric
Pope, Greg


Jackson, Ms Glenda (Hampstead)
Pound, Stephen


Jackson, Helen (Hillsborough)
Powell, Sir Raymond


Jenkins, Brian
Prentice, Ms Bridget (Lewisham E)


Johnson, Alan (Hull W & Hessle)
Prentice, Gordon (Pendle)


Jones, Mrs Fiona (Newark)
Primarolo, Dawn


Jones, Jon Owen (Cardiff C)
Prosser, Gwyn


Jones, Dr Lynne (Selly Oak)
Purchase, Ken


Jones, Martyn (Clwyd S)
Quin, Ms Joyce


Jowell, Ms Tessa
Quinn, Lawrie


Keeble, Ms Sally
Radice, Giles


Keen, Alan (Feltham & Heston)
Rammell, Bill


Keen, Ann (Brentford & Isleworth)
Reed, Andrew (Loughborough)


Kennedy, Jane (Wavertree)
Reid, Dr John (Hamilton N)


Khabra, Piara S
Robertson, Rt Hon George (Hamilton S)


Kidney, David



Kilfoyle, Peter
Robinson, Geoffrey (Cov'try NW)


King, Andy (Rugby & Kenilworth)
Roche, Mrs Barbara


Kingham, Ms Tess
Rooker, Jeff


Kumar, Dr Ashok
Rooney, Terry


Ladyman, Dr Stephen
Ross, Ernie (Dundee W)


Lepper, David
Rowlands, Ted


Leslie, Christopher
Roy, Frank


Lewis, Terry (Worsley)
Ruddock, Ms Joan


Liddell, Mrs Helen
Russell, Ms Christine (Chester)


Livingstone, Ken
Ryan, Ms Joan


Lloyd, Tony (Manchester C)
Salter, Martin


Lock, David
Savidge, Malcolm


Love, Andrew
Sedgemore, Brian


McAllion, John
Shaw, Jonathan


McAvoy, Thomas
Sheerman, Barry


McCabe, Steve
Sheldon, Rt Hon Robert


McCafferty, Ms Chris
Simpson, Alan (Nottingham S)


McDonagh, Siobhain
Singh, Marsha


McDonnell, John
Skinner, Dennis


McGuire, Mrs Anne
Smith, Rt Hon Andrew (Oxford E)


McKenna, Mrs Rosemary
Smith, Miss Geraldine (Morecambe & Lunesdale)


McNulty, Tony



MacShane, Denis
Smith, Llew (Blaenau Gwent)


Mactaggart, Fiona
Soley, Clive


McWilliam, John
Southworth, Ms Helen


Mahon, Mrs Alice
Spellar, John


Mandelson, Peter
Squire, Ms Rachel


Marek, Dr John
Steinberg, Gerry


Marsden, Gordon (Blackpool S)
Stevenson, George


Marsden, Paul (Shrewsbury)
Stewart, Ian (Eccles)


Marshall, David (Shettleston)
Stoate, Dr Howard


Marshall, Jim (Leicester S)
Stott, Roger


Marshall-Andrews, Robert
Strang, Rt Hon Dr Gavin


Martlew, Eric
Stringer, Graham


Maxton, John
Stuart, Ms Gisela


Meacher, Rt Hon Michael
Sutcliffe, Gerry


Meale, Alan
Taylor, Rt Hon Mrs Ann (Dewsbury)


Merron, Gillian







Temple-Morris, Peter
White, Brian


Thomas, Gareth R (Harrow W)
Whitehead, Dr Alan


Timms, Stephen
Wicks, Malcolm


Touhig, Don
Williams, Alan W (E Carmarthen)


Trickett, Jon
Winnick, David


Truswell, Paul
Wood, Mike


Turner, Dennis (Wolverh'ton SE)
Woolas, Phil


Turner, Dr Desmond (Kemptown)
Wright, Anthony D (Gt Yarmouth)


Twigg, Derek (Halton)
Wright, Dr Tony (Cannock)


Vaz, Keith
Wyatt,Derek


Vis, Dr Rudi



Walley, Ms Joan
Tellers for the Noes:


Wareing, Robert N
Mr. Jim Dowd and


Watts, David
Mr. David Jamieson.

Question accordingly negatived.

New clause 7

DEFINITION OF NATIONAL DEBT

'.—For the purposes of sections 152 and 153—
The "National Debt" shall be taken to include the principal amount of any non-governmental debt to the extent that such debt is guaranteed by the Government or by any organisation under its effective control or management and the amount of Government borrowing in any one year shall be calculated accordingly.'.—[Mr. Heathcoat-Amory.]

Brought up, and read the First time.

Mr. Heathcoat-Amory: I beg to move, That the clause be read a Second time.
The new clause attempts to incorporate into the Bill a tighter definition of what the Government mean by national debt. The matter has assumed greater importance since the publication, some two weeks ago, of the Government's public expenditure plans, which signal a marked increase in public expenditure under a smokescreen of fiscal rectitude.
The talk has been about imposing a discipline on the national account, but the reality underneath is that public expenditure is signalled to rise from next year and in every subsequent year by at least 2.75 per cent. in real terms. We estimate that the figure will be greater than that, once account is taken of all the changed definitions at the margin.
Thus, the question of definitions is important, particularly the frontier between capital and current expenditure. Those of us who have laboured in one of the professions thought that we understood the distinction between capital and revenue expenditure, but I do not think that the Government do. I tabled a simple question to the Chancellor of the Exchequer about whether
he plans to classify expenditure on hospital repairs as current or capital spending.
Any first-year accountancy student can answer that. Repairs are revenue, whereas alterations or additions are capital expenditure. However, the Chief Secretary answered, after some delay:
Expenditure on hospital repairs will follow the classification rules for the national accounts."—[Official Report, 29 June 1998; Vol. 315, c.29.]
Therefore, either he does not know or it is still to be determined. A simple question received a very muddled response.

Mr. Barry Gardiner: Will the right hon. Gentleman inform me—I am genuinely ignorant

about this—on whether exchanging the old shadow Chancellor for a new one is considered a repair or an alteration?

Mr. Heathcoat-Amory: If the hon. Gentleman wants to make a better attempt at a witty intervention, I hope he will catch your eye, Mr. Deputy Speaker, so that we can hear him develop that point, because it will obviously be very humorous. I am attempting to ask a serious question.
Are the Government adhering to normal accountancy rules in classifying expenditure? Judging by the reply that I have elicited, they have not made up their mind. That is a pity, because they have put enormous weight on the so-called golden rule under which the Government promise to borrow only for capital expenditure. If they are able to capitalise expenditure, they can meet that golden rule with almost any increase in overall public expenditure.
We tabled the new clause, which is modest in intent, to urge the Government to ensure that any off-balance-sheet lending is properly classified as national debt, if they extend a guarantee. The best example that we can think of is the channel tunnel rail link. Perhaps the Paymaster General can enlighten us, but it appears that the Government have extended a guarantee so that no risk, or not sufficient risk, has been transferred from the public sector. If so, the borrowing should surely be classified as national debt. The Government have every incentive to remove borrowing from the national debt so that they can, in effect, engage in public expenditure without it showing up in debt or breaching the golden rule, or the secondary rule, which places a limit on the ratio of debt to gross domestic product.
There is much confusion in this area. Changing a definition does not make something different. In the space of only three months, the Government have given up their objective of repaying national debt. The Red Book, which is only three months old, shows that, even under the most lax option of public expenditure, they had a clear intention of repaying debt. On page 121, it refers to the fact that the Government's calculations reflect
the projected debt repayment over the medium term.
In the expenditure statement issued less than three months later, all that was gone. There is now no provision for repaying national debt.
In government, things can move quickly. Promises and intentions made perhaps in good faith at Budget time are abandoned a few months later under the impact of a few broken promises. The Government are in difficulty over class sizes, they have broken their promises on hospital waiting lists, they have been panicked into taking the brakes off public expenditure, and they are reverting to tax and spend policies. The principles of national accounting should remain sacrosanct. They should not be able to manipulate the picture by changing definitions, particularly the definition of capital expenditure and revenue expenditure, simply to suit the political imperative.
New clause 7 would at least ensure that any debt guaranteed by the Government, or by any organisation under their control, would be classified as national debt. I do not seriously see how the Paymaster General can object to that, and I await his reply with interest.

Mr. Cranston: We had the usual trip around the houses with the right hon. Member for Wells (Mr. HeathcoatAmory). He spoke about the Government's confusion, but I think that he is totally confused. He moved a new clause that proposes a change in the definition of national debt to include
the principal amount of any non-governmental debt … guaranteed by the Government".
I suggest that that is incoherent.
If a guarantor guarantees an amount, there is a contingent liability, which depends, for example, on the risk of default by the principal debtor. One certainly does not attribute to the guarantor a debt for the full amount guaranteed. It is a contingent liability.

Mr. Gibb: If a bank guarantees a loan, it is obliged to account for the full extent of that guarantee as a liability on its balance sheet.

Mr. Cranston: We are talking about the definition of national debt, which is an entirely different concept.
The new clause would include in the definition of national debt any debts incurred by any other organisation under the Government's control or management. There is a legal argument as to whether the Export Credits Guarantee Department gives guarantees or grants insurance. The ECGD is under the control of the President of the Board of Trade. Is any debt guaranteed by ECGD to be taken into account in the national debt? That would be ludicrous.
The new clause is a typically incoherent amendment moved with the usual rhetoric by the right hon. Member for Wells. It signifies nothing, and I am sure that it will be rejected.

Mr. Gibb: The new clause is important, because the Government have consistently and deliberately attempted to manipulate the national accounts. On the private finance initiative, for example, there is a dispute between the Treasury and the Accounting Standards Board about exposure draft FRS5. The Government claim that the liability should not be on their balance sheet, but on the private sector.
The Accounting Standards Board accept that the liability should not appear on the Government's books, but only if the risk is transferred to the private sector. It is right. If it were to give in to pressure from the Treasury, the same accounting standards would apply to the private sector, and a swathe of debt would disappear from private sector balance sheets, which would lead in due course to company bankruptcies. The people to blame for that would be the auditors who had not applied sensible accounting methods to those companies' accounts.

Mr. Cranston: I should like to ask the hon. Gentleman a question about banking, as he invited me to do so earlier. Is not the aim of securitisation to get assets off the bank's balance sheet? It is a typical commercial practice.

Mr. Gibb: Yes—and it is important that, when securitisation takes place, there is a genuine transfer of the risk. That is why the integrity of organisations such as the ASB is so important, and why it is wrong for the Treasury to put pressure on the ASB to change its rules simply to suit the Treasury's convenience in getting debt off its own balance sheet.
That is the first way in which the Government are manipulating the accounts. We have also seen the accounting treatment of family credit. There has been almost a deliberate decision to replace family credit with working family tax credit, in order to take £1 billion from Government expenditure by reclassifying an element of a benefit as a tax credit. Its classification as tax forgone rather than expenditure wipes £1 billion, with one sweep of the pen, from the Government's accounts.
7.30 pm
The third element, to which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) alluded, involves the debate about capital versus revenue, and about what those words mean. The Government have set great store by the introduction of the golden rule that states that they can borrow only to finance capital expenditure; but what is capital expenditure? My right hon. and hon. Friends have sought to discover the definition, but have been rebuffed by the Government in all quarters, because the Government cannot provide a definition enabling us to be certain about what they mean by capital.
Does a repair to a school, for example, count as revenue expenditure, or does it count as an improvement to the school, and therefore as capital? In the private sector, a repair is treated as revenue for accounting purposes, but, responding to a question, the Paymaster General said that it would depend on the level of repair. If the repair improved the building, it would be treated as capital; if it merely repaired the building, it would not. That is too uncertain a definition. We must have certainty in national accounts; we cannot allow such a level of subjectivity.
David Clementi, one of the Government's representatives on the Monetary Policy Committee of the Bank of England, said in evidence to the Treasury Select Committee:
It can be quite hard to decide what counts as investment and what is current expenditure.
It is difficult—which is why William Buiter, another member of the Monetary Policy Committee, has dismissed the golden rule altogether as a method of assessing the correct level of debt for a Government. In evidence to the Select Committee, he said that many countries that supposedly operate the golden rule—as Germany has to do under its constitution—find
creative accounting ways of emasculating it when this needs to be … you can always reclassify 'current' as 'capital' if you twist the arms of your accountants".
That is precisely what the Government are seeking to do. We have seen it with the ASB, and we are seeing it with the golden rule. The new clause would put into legislation a definition of what is capital and what is not—of what is debt and what is not.
The fourth area in which we have seen manipulation of the accounts is the guarantee. We saw it with the guarantee of the loan that the channel tunnel rail link consortium needs to finance the link—a £3.8 billion Government guarantee. Yes, it is a contingent liability; it has not been drawn down on the Government. But, even under the Government's current rules, in assessing whether an item ought to be included as a liability or debt, the Government must consider the level of risk. If the Government consider it sufficiently likely that the debt will be drawn down, under their current rules that debt will be regarded as part of Government debt.
In a parliamentary question, I asked about the guarantee. The Chief Secretary to the Treasury replied:
The Government believe that the amount of finance required for the Channel Tunnel Rail Link is such that the financial markets would have been unable to provide the credit support which Government are to give."—[Official Report, 29 June 1998; Vol. 315, c.28.]
The Government are providing a guarantee, not to reduce the cost of finance, but to provide a loan that no one in the private sector is prepared to give. If that is not an admission that this is a very risky venture, I do not know what is. Even according to the Government's own current definition, they should include the channel tunnel rail link guarantee as part of debt.
We have seen four examples of the way in which the Government are manipulating the accounts. It is vital that that element is removed.

Mr. Love: The hon. Gentleman has referred to the difficulty and complexity of decisions of this type. He has mentioned the ASB and the Government. He will know that earlier this year, during discussions on the rules on a true and fair view, the ASB was able to persuade the Treasury to accept that element in the new accounts. Does he agree that such complex and difficult issues should be left to those who can negotiate and discuss them, rather than our trying to deal with them in a catch-all clause such as this?

Mr. Gibb: The "true and fair view" debate was about the Government's imposing on small businesses all the paraphernalia of statements of standard accounting procedures, which has never been done before. SSAP 9, for example, requires an element of overheads to be included in the valuation of stock. That imposes an unbearable burden on small businesses.
The hon. Gentleman is right to say that the ASB should not be bullied by Government. It should not be forced to change its principles and procedures simply to accommodate the Government's desire to shift debt from the balance sheet. That is why the new clause is so vital: it will give the world outside the Government—the City of London, and people who read Government accounts—certainty about what constitutes repair, what constitutes capital and what constitutes debt.
I hope that the Government will either accept the principle of the new clause, or set out the precise definitions of capital, revenue and what they regard as debt. I hope that they will also explain why the channel tunnel rail link guarantee of £3.8 billion is not being included in the balance sheet as a liability, notwithstanding the Chief Secretary's admission that it is such a risky venture that no one in the private sector would lend us money for it.

Dr. Vincent Cable: It is difficult to see anything objectionable in the new clause. I consider it a matter of general public interest for the public accounts to feature as much transparency as possible. That is desirable not just for public scrutiny purposes, but because the markets increasingly require exacting standards in regard to both public and private borrowing.
I do not think, however, that we should become too excited. It is not at all clear that the new clause constitutes an enormous advance in our understanding of the problem of public debt. The real problem—as has been revealed by the crisis in Asia over the past year—is not the difference

between guaranteed and non-guaranteed debt, but the difference between implicit and explicit debt. In Asia, enormous amounts in private loans have been raised by private agents, and the markets chose not to believe that those were purely private transactions. There was an implicit assumption that the Governments would underwrite them. Similarly, the British economy has a large amount of implicit debt that is not guaranteed, and would never be picked up by a measure of this kind.
I am sure that Conservative Members are well aware of an obvious instance. I refer to the legacy of privatisation of the utilities. If, for example, a highly geared water utility were to make itself insolvent as a result of mismanagement, it is difficult to believe that the Government of the day—whatever their politics—would allow taps to be turned off for months on end while the question whether guarantees were implicit or explicit, and the relationship with creditors, were sorted out. It would be a Government responsibility to act immediately, and an implicit guarantee would be associated with that utility because it was a utility. Simply having explicit guarantees does not take us forward very far. Inevitably, there is a vast murky area in which the Government effectively underwrite the liabilities of large parts of the private sector.
None the less, the new clause has taken us forward a little. It also enables us to raise a few more fundamental questions about what the Government hope to achieve with their debt objectives. In a sense, they have only themselves to blame for the fact that they are now being caned for a lack of precision on debt, because they have chosen to elevate their public debt target to such a high level.
It is not clear why public debt has become such an obsession for them. It can be seen from the latest relative public-debt ratios achieved by countries in the Organisation for Economic Co-operation and Development that we have a lower gross debt ratio to gross domestic product than any other G7 country—lower even than the United States—and that our net debt-to-GDP ratio, which we are now targeting, is lower than that of any other OECD country except Japan, which has the special problems of pension funding. We do not have a seriously aging population, so why is there this preoccupation with public debt?
The Government's reasoning is that they have a problem with interest payments, but the reason why we have an interest problem on public debt is because of the extremely high rate of interest on long-term debt, which is the highest in the G7. That is in large part because of the inflation expectations of the market, which now rates Britain as a greater inflation risk than Italy; it has done so for some time, not just under this Government. Therefore, the issue about public debt seems to have been grossly inflated.
I should like to pose one question, and I hope that the Minister will deal with it in his answers. What is the implication—the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) has already touched on this—of the two rules that the Government have set for themselves: the golden rule and the public debt rule? How do those two things interact?
At first sight, the golden rule is—I disagree with the hon. Gentleman on this—sensible. It provides for balanced budgeting, but allows the Government to borrow


up to whatever the limits are in terms of viable projects producing a good social return, but the question arises: supposing the Government do follow the golden rule and borrow heavily for good, useful public sector projects and that drives public debt upwards, how do the Government reconcile what would then be inconsistent objectives? What takes priority—the golden rule or the debt target, and why should the golden rule be overridden if there were a particular worry about public debt that is created by good public sector projects?
I pose that question, which might seem a little academic, in the context of two specific industries: the Post Office and the London Underground. Those are two good examples of seriously under-capitalised utilities that clearly need to borrow substantial amounts for investment. It would almost certainly be economically sensible for them to do so. It would produce good returns for the public sector. In our view and in, I think, that of most Labour Members, they should remain within the public sector, so why should they not borrow, and why would it matter if that drove up to a modest level the debt-to-GDP ratio?
I thank Conservative Members for raising this issue; it does seem important. I do not think that they take us enormously far forward, but this seems a useful addition to the collection of statistics. Perhaps it is a good opportunity to help the Minister to take us a little forward in debating his thinking on public debt management.

Mr. Flight: The new clause is extremely important because it airs an issue, in a changing world, about which Governments, of both political complexions, have scarcely thought. In the past, the general principle has been that any material liabilities that were being guaranteed should be covered by the reserves, but I think it is correct to say that there have not been clear rules on the matter to date.
The issue is important for the reasons referred to by the hon. Member for Twickenham (Dr. Cable) and my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb). As we move out of an age in which much—particularly in the utility and other sectors—was within the Government sector anyway, and into an age of many more private finance initiative deals and many more Government-private partnerships, it is inevitable that the amounts that are explicitly guaranteed by Government will grow—before we even reach the more difficult issue of what is implicitly underwritten by Government.
The new clause makes the explicit, transparent requirement that anything that is guaranteed by Government, Government agency or body related to Government, should be included within the national debt total. That could logically be interpreted as meaning that two different lots of figures should be produced: the national debt total ex such guarantees, and the national debt total cum such guarantees, with such liabilities as have been guaranteed potentially being classified by their assessed risk.
The Government's present posture seems to be somewhat cavalier, particularly in relation to the £3.8 billion-worth of London and Continental Railways bonds that have been guaranteed. I believe that I am correct in saying that the view of the Deputy Prime

Minister was, "There is less than a 20 per cent. chance that the liability will be called, so forget it." That is not at all adequate, for the reasons to which my hon. Friend the Member for Bognor Regis and Littlehampton drew attention. Whatever the risk, the money could not have been raised without that Government guarantee. If the Government are going to move forward with their private sector partnerships and with PFI activities, the issue is going to come up much more.
As has been pointed out, this touches on wider issues—for example, what do the Government mean by their definition of the factors underlying the golden rule? It is also correct to make comparisons with the private sector. As has been pointed out, in looking at a bank's capital adequacy, contingent liabilities, where guarantees have been given, have to be taken into account. In relation to any other financial services business that has capital adequacy requirements, the same is true, although, interestingly, contingent liabilities are given weightings, depending on the degree of risk involved.
7.45 pm
This is an issue in regard to which there may be scope for pan-European clarification. Certainly, the statistics that are kept by the countries of Europe—indeed, by EU member states—seem to be all over the place. If this country simply ignores this important issue, we move into what I refer to as Italian-Franco territories. Much though I love both countries, they are notorious for fiddling their national statistics, so that we do not know what the real situation is.
I was astonished to discover that the famous Italian debt ratio, on which the whole of the EMU went ahead, is not, in fact, based on the official Italian national income—the national income has been inflated by an estimate of Italy's black economy, thus serving to reduce the debt ratio from what would otherwise be about 150 per cent. to close to 110 per cent. I repeat: there is much to be said for having pan-European, agreed rules on what Government statistics should comprise, what should be published and what the divisors for certain ratios should be.
The hon. Member for Twickenham rightly raised the important issue of implicit as well as explicit potential liabilities. I think that it is impossible to define rules for the quantification of that, but it is a fair point that, in relation to the problems in Asia, the expectation that there was implicit Government support has been an important cause of some of those problems. The point at issue is not so much the explicit wording of the new clause as the fact that there need to be agreed, clear rules on this issue. Pan-European rules would be useful in enabling us to understand the true financial situation of all EU member states.
In addition to dealing with the extent to which Governments' liabilities that have been guaranteed should be set down and there should be transparency, the new clause raises the issue of future unfunded Government liabilities, which should also be explicitly quantified. What are the unfunded pension liabilities of Germany? What are the potential liabilities of the UK's national insurance arrangements? Without such data, any comparison of economies is meaningless.
Given the combination of the change in definition from the public sector borrowing requirement to the public sector net cash requirement; the issue of how to define


capital and current expenditure to implement the golden rule; and the wider issue of whether we are going to organise expenditure wholly within the state sector or within privat and state allowances, I fear that the Government are deliberately seeking to ensure that the statistics can be manipulated to suit whatever story they want to be told. The current economic situation means that that is easier to do than it has been in the past.
I strongly support the new clause and all that goes with it. If the Government do not accept it, I hope that they will come forward with sensible proposals on how the true figures of our national accounts can be recorded, and on the possibility of having a pan-European standard.

Mr. Nick St. Aubyn: I, too, welcome this debate. Viewers of the parliamentary channel may be debating whether they dare switch over to watch the match at 8 pm. We are debating a vital issue that will affect all our futures, so I hope that viewers will stay with us.
As this is a debate about the national debt, I should like to put to rest once and for all the canard that we have heard so often from Labour Members—I hope that we will not hear it again tonight—that the previous Government doubled the national debt. That is totally misleading. The previous Government halved the national debt in their first 10 years in office.
I am grateful to the authors of the Chancellor's fiscal strategy report for pointing out that, during the first 10 years of the previous Government, the level of debt fell from 49 to 27 per cent. of gross domestic product. It is true that, in the following recession, it rose again to 45 per cent. of GDP, but that was still below the level that we inherited from the profligate previous Labour Government. However, there was a benefit even there, because one of the effects of the recession, difficult though that period was, was that it delivered a very low sustainable rate of inflation and, with that, a much lower rate of Government borrowing on Government bonds, of which, of course, this Government have been the beneficiary. This Government really did have a golden inheritance. Unfortunately, not all that glitters is gold.

Mr. Christopher Leslie: The spectre of the golden legacy stirred me into action again. If the legacy was so golden, what explanation would the hon. Gentleman give to his constituents of the £25 billion used to pay interest charges on the national debt which still hang around the necks of all taxpayers in this country? Does he not realise that many people feel that the previous Government should be surcharged for such profligacy?

Mr. St. Aubyn: I am surprised that the hon. Member for Shipley (Mr. Leslie) is not embarrassed by his own question. At this stage in the previous economic cycle, the Conservative Government repaid Government debt and reduced Government interest charges. This Government have changed their tune within a year of being in office and have no intention of repaying a single pound of debt. The debt is going up year on year. That will be the tarnished legacy that we will inherit in a few years' time. The Paymaster General may smile, but we have to ask what the golden rule means.
I re-examined the figures in the Chancellor's report. It is interesting that capital expenditure under the last Labour Government accounted for more than four fifths

of the level of their borrowing. We all know that borrowing under that Labour Government was at an absurdly high and unsustainable level, yet most of it was what this Government would call capital expenditure and would therefore come close to their golden rule. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) pointed out, it is no wonder that the golden rule is next to meaningless when it comes to judging how truly prudent a Government have been.
We have heard about the bonds in respect of the new rail link to the channel tunnel. Only this morning, the Financial Times pointed out how imprudent it is of the Government not even to count that guarantee as a contingent liability, let alone subject it to the more rigorous system that we are proposing, whereby the sum would be stated up front, as it were, on the Government's balance sheet.
Let us consider the Export Credits Guarantee Department. We all support the idea of guarantees for exports. It is a thoroughly sound idea, and it underpins the strength of the economy that we bequeathed to the present Government. However, there is always room to consider the cost of what we are doing for exports. If we know the true figures, we can get clearer information and a better idea of that cost.
Of course, there is a cost associated with all the guarantees that the Government are giving. They mean that the paper in the market is effectively Government paper. As we know, the more Government paper there is in the market, the higher will be the cost of raising additional funds for the Government. There is a cost to all taxpayers for the guarantee of the channel tunnel link funding, and that cost will be in the form of higher interest rates or all Government debt. Again, the hon. Member for Shipley should have been too embarrassed to get out of his seat.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) alluded to another problem. I am grateful to the Library for coming up with some information from the International Monetary Fund on pension fund liabilities. The IMF report states:
For many industrial countries, net pension liabilities exceed current overall national debt.
In fact, in Japan, Germany and France—according to the IMF figures—the level of unfunded pension debt alone is more than 100 per cent. of GDP. In other words, as my hon. Friends have said, there are myriad ways of measuring the obligations of Governments.
We should not be blinded by the fact that the Minister will no doubt allude to the Maastricht definition. The Maastricht definition makes no reference to the level of unfunded pension liabilities which are so high in Germany and France but which, according to the same report, are less than 5 per cent. of GDP in this country. There is a dramatic difference between the strong Government debt position inherited by the Labour Government and that in any other country in Europe—and, indeed, in almost any other country in the world.
The new clause is simple and would have a very clear effect. Above all, if the Government accepted it, it would show that they took their liabilities seriously. It would show that they did count the cost, and merely by demonstrating that, would go some way to mitigating the profligacy that we have already witnessed on the part of the Government, in respect not only of the channel tunnel funding but of student loans.
By the end of this Parliament, there will not only be £3.5 billion-worth of guarantees of channel tunnel funding but about £6.5 billion-worth of student loans guaranteed by the Government. That debt will be in the market, and the Government are ultimately responsible for it. The Government are using guarantees as a way to supplement their borrowing powers in every way they can. In the process, they are undermining the very claims to prudence set out in the report that we received from the Chancellor earlier this month.

Mr. Geraint Davies: New clause 7 is a clear example of Conservative Members' financial illiteracy. The obvious point about the £400 billion national debt has already been made in this debate, as has the point about the cost of paying for that debt. The basic point that I want to make is one of financial literacy—that a contingent liability is not borrowing.
The Export Credits Guarantee Department has been mentioned in the debate. In simple terms, that department gives a guarantee—to Midland Bank, for example—to underpin a credit facility for an exporter, who in 99 per cent. of cases will later be paid by an importer. Therefore, that contingent liability never becomes borrowing. The idea of including such a liability on the balance sheet is therefore wrong. It is a situation in which a contingent liability never becomes a debt.
8 pm
I can see the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) thinking about that, and about the fact that it is facile and stupid to include contingent liabilities with borrowing. That liability will not become debt, although it is risk.

Mr. St. Aubyn: rose—

Mr. Flight: rose—

Dr. Cable: Will the hon. Gentleman give way?

Mr. Davies: I shall give way in a moment.
We therefore cannot simply club together those items, which are apples and pears. A comparison of that prescription with private sector practices, in companies and in balance sheets, would reveal that—although a company would have company borrowing on its balance sheet—a contingent liability, such as a guarantee to an associated company, would be in the footnotes of the accounts and not in the balance sheet. The reason for the practice is that that contingent liability may not be realised as a borrowing or debt obligation.
The Government issue Treasury bills and are obliged to pay for them; that is borrowing. Converely, if they give various guarantees but there is no real prospect of having to pay out on them—a contingent guarantee—it would be completely irrational to add contingent liabilities to actual borrowing to come up with a concept of debt.
Therefore, new clause 7 underlines a fundamental misunderstanding of public accounts.

Several hon. Members: rose—

Dr. Cable: rose—

Mr. Davies: I wonder why, if the new clause is such a good idea, the previous Government did not introduce

such a measure during their 18 years in office. There seems to be a whole queue of hon. Members waiting to get involved in the debate.

Dr. Cable: Does the hon. Gentleman include the World bank in his definition of financial illiteracy? As a matter of course, that bank regards publicly guaranteed private debt as part of external public debt for the 130 countries that it reviews.

Mr. Davies: I was simply saying that one cannot combine borrowing with contingent liability and come up with a figure. No one is saying that we should not assess the level of the Government's exposure to risk. If one has, for example, a credit guarantee for £100 million here and one for £100 million there, and if one of them is a very highly geared, high-risk guarantee whereas the other is as safe as houses, we simply cannot add together the two and produce a meaningful figure. The idea that we can then add on to that figure an actual borrowing liability is ridiculous.
Those who tabled new clause 7 are trying to suggest that we should enrich our understanding with a more detailed breakdown of the different types of our exposure—which would include the private finance initiative, for example. If that were really the objective of the new clause, we would be having quite a different debate. However, it is facile seriously to expect the House to pass such a simplistic new clause.

Mr. St. Aubyn: It is evident that both a guarantee and a loan are a use of credit and a use of the Government's good name. They are very similar uses of credit, and we therefore need a common measure of both of them.

Mr. Davies: That is ridiculous. If the Government borrow money, they borrow money and have an obligation to repay it, underpinned by taxpayers' money. Conversely, it is a quite different kettle of fish if they give a guarantee covering, for example, a credit failure by an exporter, or by an importer to pay an exporter in a foreign market. If the hon. Gentleman cannot understand that difference, he should not have served on the Committee considering the Bill.

Sir Michael Spicer: I had not planned on speaking in this debate, but was inspired to do so by the final remarks of the hon. Member for Croydon, Central (Mr. Davies). He said that borrowing is borrowing—which I totally agree with—but he should speak to the Chancellor of the Exchequer about that. The Chancellor has invented a new definition of borrowing, which is that it has to be related to capital expenditure and not to current expenditure.
I caught only the end of the speech by my hon. Friend the Member for Guildford (Mr. St. Aubyn), when he mentioned the golden rule. The golden rule is constantly being mentioned—I think mistakenly—as some act of great prudence.

Mr. Geraint Davies: Will the hon. Gentleman give way?

Sir Michael Spicer: I shall finish these comments—I might forget them—and then I shall certainly give way.
The golden rule breaks the point that the hon. Member for Croydon, Central made about borrowing being borrowing. It is quite wrong to try to disguise that fact.
Secondly, somehow or other, the golden rule has been used as some type of fig leaf for prudence. Yesterday, the Chief Secretary to the Treasury argued in the House with my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) about evidence given by Professor Buiter—one of the members of the Monetary Policy Committee—to the Treasury Select Committee, of which I am a member. Professor Buiter argued effectively—for very much the same reasons given by the hon. Member for Croydon, Central—that the golden rule was rubbish. The Chief Secretary said that that was not quite true, because the Government were actually interested in prudence. However, prudence—which is related to a second completely false conception, that I shall deal with now that I am speaking in the debate—is meaningless.
It is mistaken to argue that the golden rule, which is a new definition of borrowing, is somehow more prudent than a belief—as the hon. Member for Croydon, Central seemed to argue—that all borrowing is related to prudence.

Mr. Davies: I should like to make it clear that the golden rule is not a definition of borrowing, but a prescription for sound and prudent financial management. One borrows only against capital investment and not to pay for consumption. That is very sensible practice and is not a definition of borrowing. We all know that borrowing is simply taking money and spending it on whatever. The golden rule is a quite different proposition. I commend and support wholeheartedly the Chancellor's actions on debt management, the golden rule and separating capital and revenue. However, I completely reject new clause 7.

Sir Michael Spicer: I think that the hon. Gentleman and I agree on some points. The problem is that, as a definition of prudence, the golden rule is not a very good one. All precedent in public spending has shown that any increase in capital spending is usually accompanied by a pretty massive current expenditure commitment, even if it is argued that it is for capital expenditure. The relationship between capital expenditure and current expenditure has been well established as an economic concept.

Mr. Davies: Surely the point is that the revenue costs of capital investment should be paid from revenue and not from borrowing. One can borrow to invest in capital expenditure. Although there will be a knock-on revenue cost, that should be paid for out of tax. The points are quite consistent.

Sir Michael Spicer: As the hon. Gentleman said, all borrowing is borrowing. The fact is that there is not such a thing as "distinct borrowing for capital expenditure" that can somehow be identified as different from borrowing for current expenditure, in terms not only of prudence, but of practical fact.
I do not understand why there is such a fuss about the new clause. I should say, partly in response to a comment by the hon. Member for Croydon, Central, that one of the reasons why the previous Government did not make such practices particularly explicit is that there was never any

doubt that attaching some type of public sector guarantee—as there would be, for example, if a company had a Government stake of more than 50 per cent. as some form of guarantee and, therefore, there was a distortion in how it was allowed to borrow in the market—should attract the application of public sector borrowing requirement rules.

Mr. Hammond: Does my hon. Friend agree that the hon. Member for Croydon, Central (Mr. Davies) fails to see that almost all borrowing by public bodies could be replaced by private sector borrowing with the backing of a Government guarantee? Therefore, his position is ludicrous. The Government could wipe hundreds of millions of pounds off the PSBR at a stroke. That is why guarantees and borrowing are similar in their effect.

Sir Michael Spicer: That is certainly a very important point. Another important principle, which I thought was shared by hon. Members on both sides of the House, was that if any institution, corporate or otherwise, entered the market for money with the backing of a Government guarantee, not only would it have the effect that my hon. Friend has just mentioned, but it would be highly distorting and very unfair to others in the marketplace borrowing at their own risk. It is a fundamental principle and until now, it seemed unnecessary to spell it out in legislation.
However, a number of initiatives and pronouncements by the new Government and some of the spins that have been put on them suggest that, for instance, they might be prepared for a company with a 49 per cent. private shareholding and a 51 per cent. Government shareholding to borrow in a way that ignored the PSBR rules, that was outside the definition of public sector borrowing and that unfairly distorted the borrowing process. The fact that such a prospect is in the political air makes it necessary to spell out exactly what fits into public sector borrowing—not only by means of figures, but in respect of any potential distortion in the capital markets, which are highly important and should not under any circumstances be neglected.
The fact that, apparently, we have a new ethos, makes it suddenly necessary to spell out exactly what is within the PSBR rules and what is not. We have not had to do so in the past because no Conservative Government would have dreamed of breaking the rules. We know that to distort the marketplace in such a way would be not only unfair, but disruptive and inefficient in terms of the best use of capital. In future, however, such a definition may well be needed. The more that Labour Members talk about no premium being attached to borrowing by people who have some guarantee—either because of a public sector majority shareholding or through another guarantee—the more it becomes necessary in terms of equity and the most efficient distribution of capital.
Unless the Government can guarantee that there is no question of there being any distortion or any public sector guarantee leading to the PSBR rules being broken, the new clause is absolutely essential as part of the new regime.

Mr. Geoffrey Robinson: I should make two declarations of interest. First, I am not an accountant and secondly, I have an interest in football, so I hope that we shall make some progress on what is a particularly arcane issue.
The Opposition appear to be developing a new leitmotif along the lines that, under Labour, the Inland Revenue has taken much greater licence in secondary legislation—although the figures show that the same occurred as much if not more, and on equally vital issues, under previous Tory Administrations. They are also developing the line that there has been some weakening in the standards of our national accounts classification rules. The hon. Member for Arundel and South Downs (Mr. Flight) mentioned other countries fiddling their figures. I shall ensure that his remarks are brought to the attention of the Governments of the appropriate countries where, no doubt, he will be a welcome visitor this summer. However, in our case the rules have not changed.
Some Opposition Members are succumbing to what could be described as professional recidivism. In a sense we appear to be turning into accountants instead of legislators. We made it clear in Standing Committee that we could not accept a proposal along the lines of new clause 7, as it would make the Chancellor and the Government of the day accountable to the law courts, with all that that would involve, instead of to the people of this country, as we intend to remain the case.

Mr. Hammond: Will the Minister give way?

Mr. Robinson: I shall give way in a moment. I sense that the hon. Gentleman does not share my interest in making progress.
The hon. Member for Twickenham (Dr. Cable) asked what was so wrong with building up a high level of borrowing. We would prefer a prudent level, and he should bear in mind that one cannot get complacent about borrowing. In one year—the pre-Budget year of 1992—the Conservative Government increased the PSBR by £50 billion. When we took office, the interest burden was about £25 billion a year, which is more than we spend on schools and hospitals. Having said that, if we are to invest prudently for the future, we must stick to the golden rule and balance the books over the economic cycle in revenue terms. If the burden of that investment in the future is paid for in future by those for whom we are investing—our children—it has a certain fairness and symmetry.
The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) repeatedly asks how we deal with repairs and what is the difference between substantial repairs and additions. The right hon. Member for Wells (Mr. Heathcoat-Amory) gave us quite a good definition. He said that repairs to schools were usually paid for out of revenue, but that substantial additions or improvements were partly capitalised. It is a normal accounting process. We are in no way trying to understate the need for capital investment or the required level of capital investment. We realise only too clearly the great neglect there has been under previous Governments of all colours. When there is a cash problem, the immediate solution is to cut back on capital spending and keep going on revenue. That results in under-investment in services such as London Underground, to which the hon. Member for Twickenham referred. It is clear from the current state of affairs that there has been under-investment throughout the public sector, which is a crying shame.
Several Opposition Members raised the same two or three issues, so I shall not reply to them individually. In respect of the channel tunnel rail link, instead of admitting

that it was a complete mess from the beginning, having been pushed through with bad financial arrangements and for political reasons by the former Deputy Prime Minister, and saying, "We made a mess of it; thank goodness the Labour Government have managed to get it back on the rails and make a success of it," they are attempting to say that we are doing something wrong.
The Government guarantee was examined by the Office for National Statistics, which then decided not to include it as a contingent liability. Opposition Members may disagree with the ONS; from time to time, no doubt they will. It is true that we are using the financial reporting standard—on the exposure draft. We are having a vigorous debate with Professor Tweedie and his colleagues and are trying to reach an agreement. However, that is not unusual for Governments. The idea that we are doing things that are more risqué—bending the rules and twisting the interpretations further than would be reasonable—is quite wrong.
The Conservatives hate the fact that we have found a way in which to make a success of the PFI. We have done more in our first year than they did in the previous five years. Apart from the channel tunnel rail link, which was a flop, they achieved hardly anything. We have made a success of the idea organisationally and practically. Building programmes on a Victorian scale for schools and hospitals are under way because we have got the PFI right within a year, after the Conservatives spent five years messing around and getting nowhere.
That puts the CTRL and the PH into context. We are examining ways in which to strengthen the role of the ONS and the National Audit Office. The normal accounting principles continue as before. We have not changed anything; we have been far too busy for that. Instead of congratulating the Government on moving towards welfare tax reform—a major reform that the Conservatives did nothing about in all their years of power, except intensifying dependency—

Mr. St. Aubyn: rose—

Mr. Robinson: I shall give way in a moment. If I am being unreasonable, I hope that hon. Members will understand. I should like to make progress if possible.
The Government are getting on with their plans and succeeding. Our golden rule is well understood in the country. We want a prudent level of debt, and we are publishing our code of fiscal stability. That is what is necessary. The new clause would merely make the Chancellor report through the courts for his actions and result in the Government's economic policies being judged by lawyers, who, for all their immense contribution to our national well-being, are not cut out for that role. We cannot accept the new clause. I hope that good sense will prevail all round and that the Opposition will not press the issue to a vote.

Mr. Heathcoat-Amory: The purpose of the new clause was to get some assurances from the Government that they would respect the ground rules in the presentation of the national accounts. The Paymaster General's response added to our alarm. However, we do not intend to divide the House. We are aware that there is a football match taking place somewhere else and we would not wish some team or other to score when we are otherwise engaged. Hon. Members in all parts of the Palace can relax on that score.
We had hoped for some assurances. We are fully aware that the Government have two fiscal rules, which they are proud of. We wanted to know how the rules will be policed. The golden rule is all very well, and supposedly ensures that the Government borrow only for capital expenditure. If that is the case, it is important that the Government maintain discipline in allocating expenditure to capital or revenue. There might be a natural temptation for them to allocate expenditure to capital so that they can claim to be keeping to the golden rule while letting expenditure increase almost without limit. That is why we have asked some routine questions about whether the Government will keep to normal accounting rules.
The Paymaster General has given us some assurances. His understanding of the distinction between repairs and improvements is familiar. That makes it all the odder that, when asked the same question, the Chief Secretary gave an evasive reply that amounted to little more than, "We will make up the rules as we go along." That is why we were suspicious. The Paymaster General at least gave us an outline assurance.
The second discipline is that the Government say that they will keep a limit on debt as a proportion of gross domestic product, but there is another possible fudge on that. They can reclassify debt as private rather than national debt, even if it is guaranteed by the Government, who retain all the risk. That would be a clear evasion. The Paymaster General said that the private finance initiative was now a great success. It is easy to make a success of the idea if all the risk remains with the Treasury.
As the Register of Members' Interests shows, I am a director of two companies. My fellow directors and I will take on any PFI project, borrowing enormous sums and undertaking any Government contract, if the Treasury guarantees the loan and all the risk remains with the Government. It is easy to make a success of PFI if the Government take the borrowing off their balance sheet, but retain the risk. That is the problem that we were attempting to explore and that would be prevented by the new clause.

Sir Michael Spicer: Is not what my right hon. Friend is saying particularly important in the context of the Government's macro-policy on public spending, bearing in mind that public spending may go through the roof—or at least go considerably higher than we had planned? If the Government do not raise taxes, they will have to fudge public sector borrowing, as my right hon. Friend is saying. Those are issues of the highest importance.

Mr. Heathcoat-Amory: My hon. Friend is right. Our request is simply that the published projections and the national accounts should give a true and genuine picture of the state of borrowing. My hon. Friend is familiar with the problem in other countries that have huge contingent liabilities that are not disclosed.
My hon. Friend made a notable speech in the debate on the convergence criteria and the single currency. Several of us observed that it was risky for the single European currency to start when the constituent economies did not show the true extent of public borrowing. Italy, for example, has a gigantic unfunded public pensions liability, which amounts to little more than a hope that a future generation of taxpayers will honour the promises made by the Italian Government today. We have contrasted that with the happy position in this country,

where the majority of pension liabilities are represented by assets that are audited and are a visible expression of where future pensioners can expect to have their pensions paid from.
The reliability of public accounts is very important, not just domestically but in international comparisons. We are not satisfied with the way in which the Paymaster General has dealt with the issue. We shall return to it on another occasion. We greatly regret the fact that a new clause tabled in a positive and constructive spirit has not found favour, but we know that we have won the argument. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 8

STAMP DUTY ON TRANSFERS OF LAND TO DEALERS IN OR DEVELOPERS OF LAND

'.—Where a transfer of land to a dealer or developer of land takes place and the instrument effecting that transfer is liable to stamp duty at the rate specified in either subsection (1)(d) or subsection(1)(e) of section 55 of the Finance Act 1963 and the dealer in or developer of land intends either:—

(a) to transfer to an unconnected third party the same parcel of land within six months without improvement or,
(b) to develop the land and transfer to third parties or dedicate to the highway every part of the land within a period of two years from the date of transfer

he may indicate such intention by notice in writing to the Inland Revenue and provided that in the case of (a) above the land is so transferred within six months and the instrument effecting the transfer is duly stamped within the time allowed by statute for such purpose and evidence of such is produced by him to the Inland Revenue, or in the case of (b) above the land is developed (within the meaning of the Town and Country Planning Act 1947) and every part of the land is so transferred or dedicated to the highway within two years of the date of transfer and the instrument or instruments effecting such transfer or transfers are duly stamped within the time allowed by statute for such purpose and evidence of such is produced by him to the Inland Revenue, then the Inland Revenue shall repay to him the full amount of the stamp duty paid by him on transfer of the land to him.'.—[Mr. Whittingdale.]

Brought up, and read the First time.

Mr. John Whittingdale: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Alan Haselhurst): With this, it will be convenient to discuss the following amendments: No. 45, in clause 147, page 137, line 14, after '£500,000', insert
'in the case of a transfer of a dwelling house or £5,000,000 in the case of any other transfer'.
No. 70, in page 137, line 15, leave out
'for "£1.50" there shall be substituted "£2"'
and insert—

'(a) for "£1.50" there shall be substituted "£1 for every £100 or part of £100 of the consideration up to £250,000, and at a rate of £2" and
(b) after "consideration" there shall be inserted "in excess of £250,000".'.

No. 71, in page 137, line 16, leave out
'for "£2" there shall be substituted' "£3"'
and insert—
'(a) for "the rate of £2" there shall be substituted—



"(i) the rate of £1 for every £100 or part of £100 of the consideration up to £250,000.
(ii) the rate of £2 for every £100 or part of £100 of the consideration over £250,000 but below £500,000, and
(iii) the rate of £3" and


(b) after "consideration" there shall be inserted "over £500,000".'.
No. 46, in page 137, line 17, at end insert
'and after "£500,000", insert "in the case of a transfer of a dwelling house or £5,000,000 in the case of any other transfer".'.

Mr. Whittingdale: I realise that this is perhaps not the most opportune moment at which to be moving a new clause. I accept that there are other distractions, and I hope that the attendance in the Chamber does not denote the fact that hon. Members do not regard this as an important matter—it is an important matter on which we should spend a little time.
The purpose of the new clause is to provide a measure of relief to dealers or developers of land who will be worst hit by the Government's swingeing increase in stamp duty. It is worth remembering that this is the second substantial increase in stamp duty since the Government came to power. The last Conservative Government significantly reduced the impact of stamp duty by abolishing it on the transaction of shares, and by substantially raising the value of properties on which it became payable.
Within a few months of the election of the Government, the Chancellor chose to increase stamp duty by 50 per cent., from 1 per cent. to 1.5 per cent. on property sales above £250,000, and by 100 per cent., to 2 per cent., on property sales above £500,000. At that time, the Chancellor said that the measure was necessary to reduce volatility in the housing market. He said in his Budget statement last year:
I will not allow house prices to get out of control and put at risk the sustainability of the recovery. I have therefore decided that it is right to take measures aimed at stability in the housing market."—[Official Report, 2 July 1997; Vol. 297, c. 313.]
As we said at the time, that had little to do with stability in the housing market. It was a spurious excuse for what was, plain and simple, a tax rise.

Mr. Swayne: Has my hon. Friend considered the possibility of a wider agenda, in that the Chancellor may be seeking to attack our fondness for owning properties—particularly housing—because that is one of the principal causes of our economic cycle being out of sync with the rest of the European norm?

Mr. Whittingdale: My hon. Friend makes a good point. There is a real concern that this is not the last such increase that we shall see. The levels of stamp duty elsewhere in Europe are considerably above those in this country, and that may not be unconnected with the fact that we have much higher levels of house ownership.
Nine months later, in the second Budget of this Administration, the Chancellor abandoned his previous attempts to justify rises in stamp duty on economic grounds. In the Budget in April, the Chancellor increased stamp duty again to 2 per cent. on property sales above £250,000, and to 3 per cent. on property sales of more than £500,000. At that time, he made no mention of the

need for stability in the housing market. The only justification that the Chancellor was prepared to offer was that 98 per cent. of house transactions would be unaffected.
The implication of that statement was clear—this would be a tax increase affecting only the rich living in expensive houses. The truth, as we have sought to show, is different. The real burden of the tax rise does not fall on a few rich house owners who, it might be argued, can afford to pay. The real burden falls on the commercial sector of businesses and on those who invest in properties. It is hardly surprising that the Institute of Directors said:
We deplore the increases in stamp duty on high-value properties. While very few house purchases will be affected, a far higher proportion of purchases of business premises (and of goodwill and patents) will be affected. Insurance companies, pension funds and property unit trusts will bear the brunt of the direct impact of increases in stamp duty, because most commercial properties are owned by such investors and then leased. The millions of people who invest in insurance, pensions and unit trusts will therefore suffer.
it is to meet that concern that we have tabled amendment no. 45, which deals with that point by restricting the £500,000 limit to the transfer of a dwelling house, and applying a £5 million limit to other transfers.
Moreover, the effect of the increase in stamp duty is likely to be highly distorting. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has pointed out, stamp duty is imposed on a slab system, not a slice system. As a result, if a property sells for £249,999, stamp duty is payable at the lower rate of 1 per cent. However, if its price increases by £1, stamp duty becomes payable on the entire amount. As the Chartered Institute of Taxation has pointed out, at the £250,000 limit the duty on an additional £1 of consideration will lead to an additional amount due of £2,502—thus giving a marginal rate of duty of 2,502 per cent. At the £500,000 limit, the marginal rate for the extra pound of consideration is 5,003 per cent.
For all those reasons, we would much rather that the increases in duty did not take place. The purpose of new clause 8 is to seek to provide at least some protection for those who will be among the hardest hit. The Chancellor attempted to claim that 98 per cent. of house transactions would be unaffected by the increase, but that is simply not the case. Like many hon. Members, I suspect, I have seen substantial developments of new estates in my constituency in recent years. A large proportion of house sales are conducted by those buying new houses from builders and developers.
Although few of those individual transactions may amount to more than £250,000, the original purchase by the developer of the land almost certainly does amount to more than that. In most cases, developers will buy land for building in parcels worth considerably more than £500,000, and the additional cost to the developer of the increase in stamp duty is simply likely to be passed on in higher prices of the homes which he then goes on to sell. The result is that the tax increase will hit far more than 2 per cent. of house transactions.
The measure is likely to fuel house price inflation and will add to the cost of many first-time buyers and those starting a family who wish to move to a bigger home. In many cases, the value of the purchase will be far less than £250,000, but nevertheless the buyers are likely to be paying more as a direct result of the measure imposed by the Chancellor.
On top of that, developers and those who buy houses from them will have to pay stamp duty twice. It will be charged on the original purchase of land by the developer and it will then be paid again by those who come to buy properties from the developer. In Committee, the Paymaster General moved new clause 10, which was to provide for relief from double stamp duties. That measure was made necessary by the repeal of the Government of Ireland Act 1920, and was a sensible measure to ensure that people did not have to pay stamp duty twice as a result of the repeal of that Act.
In this instance, the consequence may well be that people will have to pay stamp duty twice. They will pay it indirectly through the increased cost of their homes, because the developer has had to pay it. They will then pay it again, directly, on the cost of the house that they purchase. That is serious enough at the present rates, but our fear is that it will become more serious if stamp duty increases again. In his two Budgets so far, we have seen the Chancellor's willingness to use stamp duty as a means of increasing tax and revenue.
As my hon. Friend the Member for New Forest, West (Mr. Swayne) pointed out, we have a far higher level of home ownership and far lower levels of stamp duty than exist on the continent. I should be interested to know whether it is the Government's intention to have further increases in stamp duty in coining Budgets, and whether there might be an agenda to move towards a harmonisation of stamp duty levels across Europe. I am glad to see the Financial Secretary in her place. She has a particular interest in harmonisation, and I should be interested to hear whether that future harmonisation is under consideration.
As I said, the effect of the amendments is not to remove the increase—although, ideally, that is what we should like—but to remove the increased cost of stamp duty from developers and restrict it to the sale of houses worth over £250,000. It is the Chancellor's declared intention that people selling such properties should have to pay it. If the Paymaster General wants to ensure that the measure applies only to those people, who were specifically mentioned by the Chancellor when he introduced the measure in the Budget, he should accept our amendments.

Mr. Hammond: I declare an interest in this matter, which is included in the Register of Members' Interests, in that I am a director of a small house-building and development company. I speak to the new clause not because I expect personally to benefit from the proposed change. As my hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) ably pointed out, the developer or dealer will not ultimately bear the incidence of this potential double taxation; the end purchaser will inevitably pay this tax.
Until the two Budgets under this Government, stamp duty was largely an irritant to people in the property development business and those buying and selling houses. At 1 per cent. on properties over £60,000, it had to be paid, but was not likely to be a determinant of people's behaviour in their transactions. Stamp duty on transfers of land valued at above £500,000 is now levied at 3 per cent. and, as my hon. Friend the Member for Maldon and East Chelmsford has pointed out—I know that the Paymaster General has acknowledged this problem—we have the slab, rather than the slice, system. That produces ludicrously high marginal rates of taxation, which create

artificial distortions in the property market and effectively make it certain that no house will ever be sold for £249,000 or £499,000. Anything that introduces artificial distortions into the market is greatly to be deplored.
As my hon. Friend said, when the measure was announced in the Budget speech, the Chancellor led the public to believe that it applied only to houses and then only to the houses of the few. The purpose of the new clause is to draw attention to the fact that land at every stage in the cycle of transactions will be subject to the stamp duty. To describe the effect at its simplest, a £1 million parcel of land that is sold to a developer will attract stamp duty at 3 per cent., which is a levy of £30,000. That land might be used to build low-cost housing units, which would sell for less than £60,000. People who bought those houses might think that they had escaped the Chancellor's attack on the tax-paying public because they were paying no stamp duty. However, the price of the house that they bought, as determined by the developer, would inevitably include the cost of the 3 per cent. stamp duty on the land which he had been obliged to bear.
Typically across the UK, land makes up something like a third of the price of new houses. The measure will be unequal in its impact because in certain parts of the UK, such as London—which is the most extreme example—and the south-east, high land values mean that land can represent a much higher percentage of the price of a property. In London, land could represent as much as three quarters of the value of a property. It does not take a mathematician to work out that if land is bought subject to a 3 per cent. stamp duty and dwellings are built on it which are then sold for over £500,000 each, which is not unusual in central London, the ultimate incidence of stamp duty in the final purchase price could easily amount to 5 per cent. We must ask the Government openly to acknowledge that, with stamp duty being charged on every step of the transaction, multiple tiers of stamp duty will be included in the end price.
As I said earlier, at 1 per cent., stamp duty was an irritant and did not cause major concern, but at 3 per cent. it becomes a significant factor. As my hon. Friend the Member for Maldon and East Chelmsford made clear, it has an impact not only on houses but on factories, shops, offices and any kind of development or property that is bought and sold in the marketplace. Where land is purchased and then developed, our new clause would reduce the phenomenon of double dipping.
8.45 pm
The Chancellor said in his 1997 Budget speech that he had increased stamp duty to control inflation in the housing market. As my hon. Friend noted, he did not make a similar comment in the 1998 Budget speech when he increased stamp duty on larger transactions. Will the Paymaster General tell the House whether the Government intend to reduce stamp duty if the housing market, or the property market in general, shows a marked downturn, suggesting that it is need of such a counter-balancing stimulus?
It would also be interesting to know whether the Government's longer-term intentions are to use stamp duty as a means of applying a hand on the tiller of the housing market. We hear that the Government are determined to ensure convergence with the economies of


our European partners, as a prerequisite to joining economic and monetary union. We have not so far seen very much in the way of convergence on interest rates. Indeed, the trend under this Government has been entirely in the opposite direction.
The Government have lost direct control of interest rates and have an avowed policy of seeking convergence with the economies of our European partners, although they know full well that the structure of the UK housing market is very different from that prevailing in all other European economies. Short-term interest rates have a much greater impact on individuals—that is to say, not to put it too cynically, on voters—in the UK than they do in any other country in the European Union. Do the Government intend to use stamp duty as a method of regulating the housing market, in the absence of any other controls being available to them within economic and monetary union, if and when the UK joined? In that case, what sort of rates of stamp duty might the British public expect to be imposed?

Mr. Love: The hon. Gentleman referred to convergence in Europe. I attended a conference yesterday organised by the Council of Mortgage Lenders, at which a speaker made European comparisons. First, unlike what Opposition Members are saying, the UK is not at the top—[Interruption.]

Mr. Deputy Speaker (Mr. Michael Lord): Order. When hon. Members enter the Chamber, they must be aware of what is occurring. At the moment, the hon. Member for South Derbyshire (Mr. Todd) is making an intervention.

Mr. Love: I am Mr. Andrew Love, Mr. Deputy Speaker. However, like my hon. Friend the Member for South Derbyshire, I have a moustache, so I accept that mistakes can be made.
As I was saying, the first comparison revealed that, unlike what Opposition Members are saying, the UK is not at the top of the owner-occupier league in Europe, although it is close to the top. The more interesting comparison revealed that countries that have a higher rate of owner-occupation are the least wealthy countries in the European Community. Is that the kind of convergence that the hon. Member for Runnymede and Weybridge (Mr. Hammond) wants?

Mr. Hammond: It is not simply the percentage of owner-occupation that is important, but the way in which it is financed. I suggest to the hon. Gentleman that the United Kingdom has the greatest vulnerability to short-term interest rates as an influence on the housing market.
The Paymaster General knows of my concern with this issue; we have discussed it before. I end by asking him whether, as part of the single currency package that the Government are putting together, the people of Britain are to look forward to stamp duty approaching or reaching continental rates, and being used regularly by the Government, in a downward or upward direction, to

regulate fluctuations in the housing market, thereby controlling that important element of demand in the economy.

Mr. Clifton-Brown: This measure is expected to yield £390 million in 1998–99, £470 million in 1999–2000 and more than £520 million in 2001. This is no longer a minor tax: it is a severe tax.
I declare an interest, as one of only two chartered surveyors in the House.
Pension funds have been raided by the withdrawal of advance corporation tax, and now they are being raided still further, because their property assets will have to be devalued in the Royal Institution of Chartered Surveyors' red book valuation. Until one has proper market comparatives, properties will have to be devalued. Property is always compared with equities, which retain a stamp duty rate of 0.5 per cent; property now faces a savage 100 per cent. increase in respect of values of more than £500,000—hence it will become an unattractive investment class.
It has been estimated by the well-known property consultants BTZ that there was £417 million-worth of overseas property investment in the UK in 1997, double that of 1996. The concern in the property industry is that if these swingeing increases in stamp duty continue, they will reduce the attractiveness of the UK property industry as an inward tax haven of the kind that was so successful in the golden years of Conservative economic management.
My hon. Friends have already commented on the unprogressive nature of stamp duty—it is a lumpy tax. In future Budgets, the Government might like to consider making the tax more evenly progressive. A property currently sold for £499,000 would attract stamp duty, at 2 per cent., of £9,980; whereas a similar property negotiated for sale at £1,000 more, or £500,000, attracts the 3 per cent. rate—a staggering £15,000. That amounts to a marginal rate of tax of around 5,000 per cent.
It would be interesting to know the Government's intentions for this tax. It is all very well increasing taxes in a bull market, but the property market is beginning to stagnate—house prices in London and commercial property prices throughout the UK are slowing down. On behalf of the property industry, I urge the Paymaster General to shed light on the Government's thinking.

Mr. Geoffrey Robinson: I must begin by explaining to the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) that the Government measure debated in Committee referred to double taxation on the same transaction only—a different set of considerations altogether.
I can tell the hon. Member for Cotswold (Mr. Clifton-Brown) that I am perfectly happy to consider slicing instead of slabbing—one can see the attractions of that, although the current system is well established. I should add that the change could be effective—given sound reasons for making it—only if the overall tax take did not diminish. Even with a more progressive system, there will be bunching and other anomalies. That is why we cannot accept the new clause's attempt in that direction.
The cost of the proposals contained in amendments Nos. 70 and 71 would be £250 million in a full year—perhaps rather more than Conservative Members intended,


although the amendments may be purely illustrative. At the £60,000 and above threshold, the amendments would cost about £700 million. These are orders of magnitude that we could not contemplate.
If Opposition Members would prefer a progressive, slicing system, I should be prepared to consider it; but I certainly cannot deal with that at this stage of a Finance Bill's progress.
The new clause aims to provide relief from stamp duty for land dealers and developers. If they have paid duty of 2 or 3 per cent. on a purchase of land, they would get the duty repaid if they sold the land without improvement within six months, or developed and sold it within two years. The new clause gives no relief where the dealer or developer has paid duty at the 1 per cent. rate.
The proposed relief would have a revenue cost; other things being equal, the rates of duty proposed in the Budget would have to be increased to make up the lost yield. More specifically, that would involve making some arbitrary distinctions between cases qualifying for relief and cases that would not. The same sort of bunching problem would recur.
For example, a dealer selling unimproved land after five months would qualify, but one selling after seven months would not. If the land passed through the hands of a number of dealers in succession, the clause would appear to allow each in turn to claim repayment of duty on his purchase when the land was sold on to the next dealer. A whole series of transactions could result in only one stamp duty charge ultimately being payable.
Similarly, the proposed relief for developers would have arbitrary limits. A development that took longer than two years to complete would not qualify; that would impose arbitrary constraints and distort commercial decisions—not in the best tradition of Tory free-market thinking: more like old Labour. It is much better to impose general rates of duty that apply across the board.

Mr. Hammond: Can the Minister see any really good reason, apart from revenue raising, why a piece of land that changes hands three or four times in a year should be subject to stamp duty at 3 per cent. on each transaction?

Mr. Robinson: There must be a very good reason for the land to pass through three pairs of hands in six months; a profit must be made on it in each case, and, if that is the case, the tax should be levied. That is how markets work. In case the hon. Gentleman does not understand, that is what market economics is: each transaction is taxed, even if there are three or six transactions in a given period. It is much better to let a market work in that way. I accept that we may have differences about the level of tax, but it is not sensible arbitrarily to interfere with markets.
Regrettably, I cannot accept new clause 9, amendments Nos. 70 and 71 or, for that matter, amendments Nos. 45 and 46. The latter two amendments would alter the application of the new top rate of 3 per cent. for stamp duty on transfers of land and buildings. There would be no change for residential property, but, for commercial property, the 3 per cent. would apply only to transfers over £5 million instead of £500,000. The implication is clear that the Opposition believe that the 3 per cent. rate is damaging the commercial property market, but no hon. Member made a convincing case for that in the debate.
I say to the hon. Member for Runnymede and Weybridge (Mr. Hammond)—the subject was also raised in earlier debates—that there is no hidden European agenda to bring our stamp duty rates up to the European level. The equivalent taxes in other European countries are a great deal higher—I gave the figures in the previous debate. Some of them are extraordinarily high. In Belgium, there is a 12.5 per cent. registration tax; in France, registration duty is 8.6 per cent; in Germany, the rate is 3.5 per cent. of purchase price across the board, as far as I can see—no graduation there. In Greece, the rates are 9.3 and 11.3 per cent. In Italy, the rate is 8 per cent; in Luxembourg, 5 per cent. of sales price; in the Netherlands, 6 per cent. of market value of property.
Traditionally, those countries have very high levels of such taxes—higher than ours, and their markets are differently structured. We have no agenda to move to those levels, but—I again address my remarks to the hon. Member for Runnymede and Weybridge—I would not prejudge the Budget judgment that the Chancellor of the Exchequer might wish to reach in any year about the level of stamp duty, given the condition of the property market and the overall state of the economy, and the hon. Gentleman could not realistically expect me to do so.
One thing that we do want to prejudge and avoid, however, is boom-bust in the property market. We had the saddest, most disheartening boom and bust, when young people—especially young couples—were caught in awful negative equity traps as a result of such mismanagement. We certainly want to get away from that. That is why all that we do is geared toward stability, and the taxes that we are debating are part of that.
Amendments Nos. 45 and 46 would cost us £130 million, and, for that reason alone, we cannot accept them. I am sorry that it is no on all counts. I hope that there is no need to press the amendments to a Division, but that decision rests with the Opposition.

9 pm

Mr. Whittingdale: We should be grateful for small mercies. The Paymaster General has conceded that the present system of the slab operation of stamp duty has the absurd effect of giving rise to incredibly high marginal rates, and he has suggested that he might be prepared to consider that. I hope that we may return to that subject when we debate future Finance Bills; we look forward to debating it then.
The Paymaster General has given us several reasons why he considers our amendments to be deficient, and I understand those reasons. The amendments did not constitute our ideal solution. We should have preferred it if the increases had not been introduced. Our preferred option was that the Paymaster General would tell us that he would not be proceeding with them, but obviously he is not prepared to do so.
The Paymaster General has not entirely reassured us about his future intentions. He has told that us that there is no European agenda to move toward the harmonisation of stamp duty rates, and I suppose that we should be grateful for that, but he has obviously not told us that there will be no intention in future to make further increases in stamp duty. My hon. Friends and I retain a considerable suspicion that the Chancellor now views that as an easy way to increase taxes and raise money.
We have sought to show that, although the Chancellor may try to suggest that the measure hits the rich and affluent—the owners of large houses—exactly the reverse is the case. It will have an impact throughout the housing market, and many of those young first-time buyers, whom the Paymaster General mentioned, may end up paying more as an indirect result of the measure.
However, as I have suggested, I do not believe that this is the occasion on which to press new clause 8 to a Division, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 9

AMOUNT OF INHERITANCE TAX CHARGED IN HERITAGE CHATTELS WHICH DO NOT MEET THE AMENDED HIGHER THRESHOLD TEST

Notwithstanding the provisions in section 140 of and Schedule 25 to this Act (amending section 31 of the Inheritance Tax Act 1984 introducing a new higher threshold for chattels qualifying for heritage exemption), for those chattels which do not qualify as preeminent, the rate of tax will be based on the value at the date when the original heritage exemption was agreed between the owner and the Inland Revenue.—[Mr. Woodward.]

Brought up, and read the First time.

Mr. Shaun Woodward: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss the following: New clause 10—Lower corporation tax for art sales—
'.—(1) This section applies to any company whose business consists primarily of the sale of objects, properties and assets (hereinafter referred to as a "qualifying sale of art") which (i) come within group 11 of Schedule 9 to the Value Added Tax Act 1984 and (ii) are effected by or through such company acting as a recognised agent (as defined in sub-paragraph (4) below) where such recognised agent is liable to account for any amount of corporation tax in respect of a quarterly period (hereinafter referred to as a "qualifying tax payment").
(2) The recognised agent shall be deemed to have paid the full amount of his qualifying tax payment in respect of any quarterly period even though he deducted from that full amount a sum equivalent to 40 per cent. of the amount due (the "permitted deduction").
(3) The amount of the permitted deduction shall be calculated for each quarterly payment period, and a permitted deduction may not be carried back or forward for offset in any other quarterly payment period.
(4) For the purposes of this section, a recognised agent means any auctioneer or any person carrying on a trade of dealing in any description of moveable property, or of acting as an agent or intermediary in dealings in any description of moveable property. In respect of any qualifying sale of art there shall be not more than one recognised agent for the purposes of this section within any period of six months who in the event of dispute shall be determined by the Commissioners of the Inland Revenue.
(5) This section shall come into effect on 1st October 1998.'.
New clause 11—Corporation tax relief for art sales—
'.—(1) This section applies to any sale of objects, properties and assets (hereinafter referred to as a "qualifying sale of art") which (i) is within Group 11 of Schedule 9 to the Value Added Tax Act 1984 and (ii) is effected by or through a recognised agent (as defined in sub-paragraph (4) below) where such recognised agent is liable to

account for any amount of Corporation Tax in respect of the quarterly period during which the sale takes place (hereinafter referred to as a "qualifying tax payment").
(2) The recognised agent shall be deemed to have paid the full amount of his qualifying tax payment in respect of any quarterly period even though he deducted from that full amount a sum equivalent to 1¼ per cent. of the proceeds of the sale (the "permitted deduction") in respect of qualifying sales of art occurring in that period.
(3) The amount of the permitted deduction shall be calculated for each quarterly payment period, and the amount of the permitted deduction shall not exceed the amount of the qualifying tax payment for the quarterly payment period to which it relates. A permitted deduction may not be carried back or forward for offset in any other quarterly payment period.
(4) For the purposes of this section, a recognised agent means any auctioneer or any person carrying on a trade of dealing in any description of moveable property, or of acting as an agent or intermediary in dealings in any description of moveable property. In respect of any qualifying sale of art there shall be not more than one recognised agent for the purposes of this section within any period of six months who in the event of dispute shall be determined by the Commissioners of the Inland Revenue.
(5) This section shall come into effect on 1st October 1998.'.
Amendment No. 72, in clause 39, page 23, line 1, at beginning insert—
'(1) Save as provided in subsection (2),'.
Amendment No. 73, in page 23, line 6, at end insert—
'(2) Sections 26 and 27 of the Taxes Act 1988 shall continue to have effect in respect of the estate and maintenance funds which cover heritage properties receiving an audited number of visitors of 5,000 or more per year.'.

Mr. Woodward: New clause 9 and amendments Nos. 72 and 73, which stand in my name, are obviously about heritage, tourism, access, fairness and a fair tax regime. The Bill is unfair and will damage our tourism and heritage business very much.
Sir Richard Eyre's report for the Government, published today, states:
Every Government since the War has been committed in principle to the belief that the arts are important…and each Government is at some time obliged to ask itself how important".
It is sad that, in the Bill, the Government pay no regard to the importance of our tourism industry or our heritage. At a time when we face the outcome of the comprehensive review of expenditure, Sir Richard Eyre says:
Whatever the structural outcome, there must be a more positive and constructive approach to delivering arts policy objectives.
The amendments attempt to make sense of a strategy for the arts and tourism that at best is muddled, and at worst—and more likely—is symbolic of the fact that the Department for Culture, Media and Sport is irrelevant in the eyes of the Government, and the Secretary of State has no weight in determining Government policy. The Treasury has won on every count. The purpose of the new clauses and amendments is to ask the Government at this late stage to recognise the considerable damage that will be caused to the arts and the tourism industry.
Amendments Nos. 72 and 73 seek recognition of the importance of heritage properties that attract an audited figure of 5,000 visitors a year. Despite the fact that millions of people enjoy access to those properties, clause 39 would almost certainly deprive many of those people of access to some of the buildings of greatest historical and architectural importance in our country.
This is not the place to rehearse the Government's thinking behind the clause, but I shall give the House an idea of the damage that will be done. The Historic Houses Association calculated that its 64 members who will be affected by the proposal face routine recurring repairs set off against income over the past five years of about £11.4 million. They will have major repairs set against income over the past five years of £6 million. The estimated additional tax that will be payable over the next five years, after the concession is withdrawn, is £8.7 million.
The Treasury is chasing a relatively small sum, but the damage that it will do to public access and to the tourism industry which feeds off access to those houses is considerable. The Historic Houses Association estimates that, every year, 2.7 million people visit the properties that will be affected, and an even greater number enjoy their parks and gardens. Those 2.7 million people will be disappointed so that the Treasury can meanly chase £1.7 million in taxation.
If one of those houses were handed over to the National Trust for it to look after, the cost to the public sector would be around £10 million a year. The problem with clause 39 is that it is certain that some of the 64 houses open to the public will be withdrawn from public access, because the owners will no longer be able to run the properties. The homes will go into the hands of people who may have a great deal of money and who can afford to run the houses without opening them to the public and without taking advantage of one estate election.
Although in their rhetoric the Government are committed to access, in practice they are removing it. The tourism industry, which is on the back of that business, will be brutally damaged. It is sad that, in the clause, the Government are showing that they do not care about the tourism industry. That is clearly summed up in the Culture, Media and Sport Select Committee report, which pointed out that the Secretary of State does not value tourism. The report recommended that tourism should be the lead responsibility of a Minister in the Department, yet there is no sign from the Government that they recognise the importance of that. The report goes on to say:
We note the Department's commitment to enhance its influence within Whitehall and to highlight the economic and cultural importance of the sectors which it sponsors. However, a commitment is not an achievement and unfortunately the Department has not enhanced its influence in the way it says it would like to do.
That is the point: the Secretary of State has totally failed the heritage and tourism industries. The purpose of amendments Nos. 72 and 73 is to try, at this late stage, to put right the considerable damage that is being done.
Last night, in a token effort to acknowledge the arts industry, the Prime Minister held a seminar at No. 10 Downing street in which many of the new Labour peers and others were invited to take part. The Secretary of State for Culture, Media and Sport told us today about the significance of the "arts summit", as it has been called. He told the Evening Standard that culture would be
written into the core script".
I am sorry, but, unless the hon. Lady shows willing and accepts the amendments and new clauses, it will expose the Prime Minister's meeting last night as mere rhetoric.
Referring to the Prime Minister, the Secretary of State told the Evening Standard:

I think he really does care. The idea that he is uninterested in the arts is very wide of the mark.
The proof of that statement lies in the Bill's clauses and in whether the hon. Lady will accept the amendments. The magazine Country Life recently said:
Hidden in the Finance Bill, a Disaster for Heritage.
[Interruption.] I am sorry that Government Back Benchers are unable to acknowledge with any sense of decorum a magazine such as Country Life. That shows rather ably and fitly what callous contempt they have for rural life, for country life, for heritage and for tourism. It demonstrates also how ineffective the Secretary of State has been in making a case on behalf of the arts.
The Government intend to treat the private owner in a callous manner that runs completely counter to what the Secretary of State said last year when he addressed a meeting of the Historic Houses Association and praised the role of the individual owner. The Government will resort to type by taxing those private owners whom, in their rhetoric, they value, but, in their practice, they wish to tax. The consequences will be a forced sale of houses and unemployment for the several thousand people who are directly engaged in running those houses and for the many tens of thousands of people who are in associated tourism sectors such as hotels, shops and cafes.
It is conspicuous that Labour Members did not speak up once in Committee on behalf of their constituents and others who work in sectors related to historic houses. Not once have Labour Members spoken on behalf of the tourism industry that is related to those houses. Labour Members have failed totally to stand up and protect the interests of their constituents. It is significant also that, despite these amendments, not one member of the Heritage team is present in the Chamber. If they had been told about it, those Ministers might have liked to attend. However, I am sure that they were not told, because the Treasury team simply does not care about tourism or culture in our country.
There is no coherent policy: the left hand is taking taxes while the right hand pretends that it cares. One solution in such cases is to conduct a review. However, I am afraid that the Secretary of State for Culture, Media and Sport will be rather disappointed by his latest review, the Eyre report. He will find that he will have to go to the Chancellor to ask for an extra £15 million subsidy for the Royal Opera house. From where will the money come? If that money is found, it will probably come from our heritage of historic houses and from arts sales. The Treasury is in charge of the Department for Culture, Media and Sport. The Treasury is vandalising our heritage, pilfering here and pilfering there; it is squandering a thousand years of history. Access will be lost.
The plundering extends not just to our houses. The purpose of new clause 9, which would result in an important change to the Bill, is to put right a bad and mean-spirited clause which will have far-reaching effects—far-reaching because 20,000 objects on the Victoria and Albert list, otherwise known as the register of conditionally exempt objects, will be affected by the clause.
9.15 pm
Every major auction house in Britain reckons that the consequence of the clause will be a dramatic number of sales of some of the most important architectural, historic,


prized national assets, simply because the Treasury lighted on a report from the National Audit Office in 1993 which said that £1 billion had been lost in revenue during the previous 10 years because of the effects of the then current legislation. Labour in opposition regarded the area as a loophole for the rich, and it has moved in to grab the money.
Sadly, it is the public and those who work in the related industries who will suffer. It is a great shame that a Government who wish to kick into touch, by a review, everything that is a problem do not wish to take notice of those who have themselves conducted a review of the clause and those who are behind the thinking of the new clause—bodies such as the Museums and Galleries Commission, the National Trust and the Historic Houses Association, all of which feel that the new rules will severely damage Britain's arts, culture and heritage.
The Government are changing the rules. They are changing the rules so that, for example, the 70-year-old pensioner who has, until now, enjoyed the benefits of conditional exemption, will suddenly be told that she must open up her flat, or wherever else she may live, and give public access—that appointments will not do. It is ludicrous to expect a 70-year-old to open up what might be a small two-bedroomed flat to anyone who wishes to come by. Doubtless, if she did, the Home Secretary would be here in a few weeks telling us what a scandal it was. But the Treasury does not speak to any other Department. The Treasury here is on a smash-and-grab raid to hurt people and to rob them of their heritage, and to rob Britain of its heritage by this mean-spirited clause.
The purpose of new clause 9 is to recognise the damage, strain and stress that the retrospective nature of the breach of rules will cause. We are suggesting that the valuation should not be a current valuation but that, if the rules are to be changed underneath people's feet, the valuation should be based on the value of the item when it was inherited. During the past few years, the value of art objects has increased enormously. It is interesting that, again, the Treasury spots an opportunity, goes in, takes the highest value possible and extracts as much taxation on the back of that as possible.
It is interesting that auction houses such as Sotheby's and Christie's, which might benefit from the sales that will undoubtedly follow as a result of the legislation, say that we should not do this, that it is unfair. They say that their business is not only the sale of works of art but their management. A great deal of their time is devoted to caring for and preserving collections.
Unless the Government accept the new clause, the Bill will ruthlessly damage Britain's art and historic heritage. It is not by chance that the Museums and Galleries Commission made a last-minute plea to the Government to recognise the importance of flexibility. I am sorry that, unlike on amendments Nos. 72 and 73, it has not been possible to meet Ministers on the new clause.
I pay tribute to the Paymaster General because at least he—despite, I think, pressure from some of his colleagues not to have a meeting with regard to one estate election—was prepared to meet the Historic Houses Association and listen to its arguments, and I believe that he was persuaded that there was a real problem. Contrary to what we have heard from the Financial Secretary, I think that

he believes that there is a real prospect that damage will be done. I have to give him credit for listening, at the last minute.
Although the Financial Secretary will, sadly, not tell us that there will be significant changes to the Bill, she will have to acknowledge that, as a consequence of the debates in Committee and on the Floor of the House, the Inland Revenue should be asked to consider sympathetically the plight of the most affected houses. This is a sad day for the tourism business and for our country's heritage industry. I can only hope that, instead of showing brazen cheek and being unprepared to consider strong arguments from heritage bodies, she will have the grace at least to recognise the damage that the Bill will do if it is not amended.

Sir Patrick Cormack: I shall speak briefly and, although I applaud what he said, in a slightly more conciliatory spirit than my hon. Friend the Member for Witney (Mr. Woodward). I declare two interests: first, I am chairman of the all-party arts and heritage group, which is the largest all-party group, and, secondly, I am a member of the Royal Commission on historical manuscripts.
When we last had a Labour Government, there was a proposal for a wealth tax. A number of hon. Members, from both sides of the House, were worried about the impact that that might have on heritage, so we formed the all-party arts and heritage group. We met Ministers, and the most helpful was the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who was then a Treasury Minister and is now the deputy chairman of the all-party group. He has been one of its most steadfast supporters, and has spoken to the Financial Secretary about these matters. Although he is not in the Chamber, I know that I speak for both of us when I say that I hope that the Government will respond positively, as did the previous Labour Government.
I also hope that the Government will realise that the Bill will do great damage to heritage properties if it is enacted unamended. With great force in a robust speech, my hon. Friend the Member for Witney suggested some of that damage, but I know from 28 years' experience in the House that hon. Members on both sides of the House share my love of and concern for our enduring heritage. I hope that the Financial Secretary's response will prove that she is of our number.
Enough of that—I want to say a few words about objects. My hon. Friend the Member for Witney discussed objects being seen without an appointment being necessary, which is the most important aspect of the changes. If heritage objects, which are often in small and vulnerable properties, could be seen without appointment by people who turned up and demanded to see them, and if they were listed in such a way that anyone would know where they were, a thieves charter would be created.

The Financial Secretary to the Treasury (Dawn Primarolo): The hon. Gentleman is making an important point. I want to be sure, therefore, that he understands what the Government are trying to do. We are not saying that appointments to view objects should be abolished; we are saying that there should be a review of a system where there is appointment-only access to a certain category of object, even though some objects in that category should


not be viewed by appointment only. There will still be cases, however, where an appointment will be necessary for the very reasons that the hon. Gentleman has outlined: security, sensitivity and an object's fragility. That was made clear in Committee.

Sir Patrick Cormack: I am glad that the hon. Lady has sought to emphasise that on the Floor of the House.
The Historic Houses Association, which has been cited in evidence and with which I have had many conversations, as I know the hon. Lady has, is anxious to work with the Government as it worked with the previous Government. It knows that there are grounds for changing the current rules, but it is extremely concerned about the "by appointment" aspect. The Royal Commission on historical manuscripts is primarily concerned with historical manuscripts, which are among the most fragile of all objects, and I know that the commission and the Museums and Galleries Commission share the same concerns.
Although I am grateful for the assurance given at the Dispatch Box, which will, to a degree, reassure many people, the hon. Lady must recognise that the Bill is not entirely in line with what she said. I therefore ask her to look at the matter carefully. Next week, the right hon. Member for Ashton-under-Lyne and I will see the Minister for Arts and we shall discuss some of the heritage implications. The matter is crucial because, whatever else the Government do, they must not damage an all-party accord that has served our heritage well over the past quarter of a century or more.
My final plea to the hon. Lady is that she build on what has been achieved over the past quarter of a century, and does not damage or jeopardize it.

Mr. St. Aubyn: I wish to speak to new clauses Nos. 10 and 11. We have heard how the Government's deafness to my hon. Friends' pleas may lead to the sale of a great deal of art. I wish to outline proposals to deal with the problem for the London art market. The sales may be a last hurrah, unless we deal with a fundamental threat facing that market today.
More than 20,000 people are directly employed in the art market in this country, and its turnover is about £2 billion a year. Half that trade comprises works of art that enter the country and then leave it. More than £1 billion of art is imported and nearly £1 billion is exported. By far the largest sources for those imports are Switzerland and the United States, and those countries are also by far the largest markets for exports. Unless the problems that I am about to describe are addressed, at least half the art market, in London in particular—a world art market and undoubtedly the leading art market in Europe—will go not just outside this country but outside the European Union, back to Switzerland and the United States.
Christie's, one of the world's leading auction houses, recently acquired the Rockefeller Centre in New York. It is preparing for the fact that the London art market, where it has been since its foundation, may be about to leave its historic shores. The problem that faces Christie's is that of VAT harmonisation, and the purpose of the new clauses—I would welcome any suggestion that the Financial Secretary has to improve them—is to mitigate the effect of that threat on art houses and the art market in the UK.
Until five years ago, there was no VAT on imports of works of art. The change was introduced by the previous Government, after a great deal of pressure from our EU partners. A concessionary rate of 2.5 per cent. on the cost of those imports was agreed, but after five years it was agreed that that rate of VAT would rise to 5 per cent. In Switzerland and the United States, there is no import duty on such works of art.
9.30 pm
We have evidence that, as a result of the imposition of a 2.5 per cent. rate of VAT, the amount of art coming into this country has reduced, and there is every indication from the art world that, if the duty goes up to 5 per cent., the market in the UK will be destroyed.
I am grateful to the British Art Market Federation, of which my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) is president, for the information that it has supplied on this serious issue. If the Government take no action, 10,000 jobs are at risk. In its report, the BAMF says:
Markets take years to develop but can be lost very quickly.
It is in no doubt that, if action is not taken, the Government will share responsibility for that.
It is highly fitting that we are debating this issue on 30 June, at the end of the UK presidency of the European Union. How much time did the Minister or any of her colleagues spend during the past six months addressing the problem of the real threat to the 10,000 jobs directly affected?

Mr. Love: The trend in the international art market in recent years has resulted in a major shift of focus from Europe to the United States. A number of the major companies that the hon. Gentleman mentioned are now under American ownership. How can he persuade us that it is that trend at work, and not a spurious problem in Europe?

Mr. St. Aubyn: The hon. Gentleman gives me an opportunity to declare an interest. It so happens that my brother-in-law is chairman of the fifth largest auction house in this country, Brooks auctioneers, which specialises in classic cars. It was the first London auction house to be started for 200 years, and it has established itself as a world leader in the field of classic cars. That company would undoubtedly like to retain London at the heart of its business, but it is being forced to open up in Switzerland and in the United States precisely because of the threat that affects not only classic works of art, but classic cars.
I am grateful to my brother-in-law for pointing out the example of Australia, which introduced a system of duty on imports that led to the complete collapse of its market. He tells me that non-EU buyers account for about 30 per cent. of sales in classic cars. That trade will move out of this country if the Government do not confront and deal with the issue of harmonisation.
What would be the effect of our new clause? We cannot change VAT rates in a Finance Bill debate. Without the will of the Government, we cannot change what has been agreed by other member states, although when the harmonisation deal was struck five years ago, it was agreed that the European Union would undertake an


investigation into the effects of harmonisation. We are now six months from the end of 1998, by which time, at the very latest, that study should have been carried out, and there is still no evidence that the EU is putting its mind to this issue. How much time and effort did the Minister and her colleagues give during our presidency to getting this study under way, so that the matter can be addressed by the EU?
We have had to react to the current situation. The Government's total inaction has put 10,000 jobs at risk. We must come up with a local solution to the problem. The local solution is to provide a form of tax rebate on corporation tax. No doubt the Minister will tell us that that would cost a great deal of money: in a full year, it may cost more than £10 million. I draw her attention to the study by the eminent economist Peter Oppenheimer, "VAT in the UK Art Trade", which pointed out the tremendous fiscal advantages to the UK Exchequer of increasing the market through the encouragement of imports. Since he undertook that study 11 years ago, we have seen the London market develop, strengthen and grow.
We are not talking about a case in which it may cost the Government £10 million in lost revenue to mitigate the effects on imports; we are talking about the loss of the entire market, the loss of all the VAT receipts and the loss of all the corporation tax. Furthermore, there are the indirect losses—the losses to London's tourist trade, its hotels and its major shops. When people visit an art market auction in London, they do so to enjoy themselves. They spend money, and fructify London's economy at the same time. If the Minister and her colleagues fail to accept and meet the challenge, they will not only damage the art market, but fail London—and far more than 10,000 jobs will be lost.
I do not pretend that the new clauses and amendments are perfect. As I have said, they constitute an attempt to raise an issue and ask Ministers key questions, and it is in that spirit that I seek answers.

Mr. Swayne: I shall be brief, but I wish to speak in favour of amendments Nos. 72 and 73. In doing so, I shall quote from a letter from my constituent Sir Edward Hulse, who farms at Breamore house near Fordingbridge and who opens the house to the public.
In the interests of brevity, I shall not read out the entire letter, but it begins with the heading "One Estate Election", and continues:
The removal of this concession is particularly dangerous for the small house, (houses who have less than 50,000 visitors a year). In 1954 we had c. 40,000 visitors but now have c. 14,000. The competition has increased out of all proportion to the number of people requiring leisure…
I estimate maintenance at £15,000 pa. There are of course times when this is exceeded. If One Estate Election is withdrawn maintenance would have to be reduced as less cash would be available. In my case at least £2,500 pa.
I think that the House will agree that that is a staggering reduction in the amount of maintenance.
Sir Edward's letter continues:
but if farm profits rose these would be partially used to catch up with the backlog of maintenance.
It is, I think, a pious hope that farm profits would increase in this climate. That alone should be an argument for the Government to show some sympathy.
The letter goes on:
I do find maintenance a major problem but it must be in the national interest"—
in the national interest, that is, for Sir Edward to receive help. He writes:
I admit this concession is helpful.
He continues:
There is a lot of talk about public access and we open on average five days a week (three in April and everyday in August). The point is this costs money particularly in April. Consideration would have to be given to reducing the season if we are to have less money available for maintenance. My first priority must be to the House".
Sir Edward's second priority, he writes, must be his visitors.
In this age of fascination with the millennium, the 21st century and the age of "cool", we are perhaps less mindful of our heritage; but I am sure that we all agree on the importance of our link with the past. The most vital element in the maintenance of that link is the private owner. Indeed, the Secretary of State for Culture, Media and Sport said only recently:
The private owner remains the most effective economic guardian of this sector.
I believe that the private owner is undermined by clause 39, and that amendments Nos. 72 and 73 go some way towards remedying the situation.
The simple fact is that, if we treat listed buildings and country houses as ordinary businesses, they will become uneconomic. The ability to set maintenance costs against income is vital. It is nonsense to pretend that the money for maintenance could be found out of tax income.
As Sir Edward Hulse points out, opening the house to the public only barely covers the costs. What will be the consequences of the clause if it is unamended? Repairs will be put off, public access will be curtailed and restricted, contents will be sold, collections will be broken up and valuable works of art will be lost to the nation. Eventually, houses will be sold and the doors will be closed to the public. Far from removing one estate election, the Government need to extend it to all existing owners. That would be the proper way in which to end this anomaly.

Mr. Peter Brooke: The Whips kindly released me for this evening. I have returned from the engagement that I had with my constituents elsewhere because of the importance of the issues that my hon. Friends the Members for Witney (Mr. Woodward) and for Guildford (Mr. St. Aubyn) have relevantly and admirably raised in the debate.
I declare an interest, to which my hon. Friend the Member for Guildford has referred. I am president of the British Antique Dealers Association. As I record in the Register of Members' Interests, I receive an uncovenanted case of wine at Christmas, which is not in any sense part of any contract that I have with it. As my hon. Friend also said, I am president of the British Art Market Federation, which was created in the last year of the previous Government because they said that it would be much easier if they could deal with the art market as a whole, and not deal with 15 or 16 different parts. My hon. Friend the Member for South-West Hertfordshire (Mr. Page) was the Minister who engaged in that dialogue, and I am delighted to see him in the Chamber.
To deal with the matters relating to the British Art Market Federation, my hon. Friend the Member for Guildford has dealt with the state of the market cogently. I shall not rehearse those issues again, even though it is only early in the night, except to congratulate him warmly on the comprehensiveness with which he has set out the problems, of which I am certain the two Treasury Ministers who are present are vividly aware.
I acknowledge that the problems are created for us from elsewhere in the European Union—they are not totally under the control of this Government—but it is extremely important that Treasury Ministers fight strenuously and robustly on our behalf, otherwise the sad consequences to which my hon. Friend the Member for Guildford referred, are likely to come to pass.
As my hon. Friend the Member for Witney has said, the Government have got themselves into some difficulty with the arts in general, which the Prime Minister, who has been substantially responsible for that development, is seeking to repair. It has already, I fear, been commonplace in relevant circles that the Government do not care much for the heritage. I find that a disappointment, given my recollection—I was in the House at the time of the previous Government; indeed I have served on a Committee that considered the Finance Bill in the time of that Government.
I am sorry about the Government's policy, as it contradicts the tradition that had been observed by previous Labour Governments. The Treasury, particularly during the passage of Finance Bills, worked constructively with the heritage lobby in terms of its preservation. I am genuinely surprised that it should be through the Finance Bill that the Government should have launched the assault on the heritage, and there is no question but that there is an element of assault about it, although the Financial Secretary may be able to reassure us at a later date.
There was a major move of British works of art out of this country at the time of the Reformation because of what happened to the churches during that era. Happily, as the almighty is even-handed, in the earliest part of the 19th century, with the reign of Pugin and neo-Gothicism, much art came back into this country's churches, but the changes to taxes in the 1880s, particularly in relation to aspects of entail and inheritance tax, were responsible for major sales by British families in historic houses, and many works of art crossed the Atlantic during that period, which we can now admire in American museums. It is sad that the collections that were sold were not replenished with contemporary art in the late 19th century, or, indeed, in the 20th century. The collections of British historic houses are nothing like as impressive in terms of the art of the last 100 years as they are in terms of art from the five previous centuries.
9.45 pm
I am not laying the blame for that at the Government's door, but they are threatening us with the deluge onto the art market to which my hon. Friend the Member for Witney referred. Like my hon. Friend the Member for South Staffordshire (Sir P. Cormack), he alluded to the potential threat of burglary. There have been relatively recent convictions of organised gangs which simply used "Who's Who?" as a way to identify houses around the country where there might be rich pickings. Some

exceptionally disagreeable violence was involved in the burglaries. That causes great anxiety to the owners of historic houses who fear that, under the Government's regulations, they may be under similar threat of burglary and violence because their details will be readily available.

Mr. Love: rose—

Mr. Brooke: I will give way to the hon. Gentleman, not least because that will enable me to respond to something that he said earlier in an intervention.

Mr. Love: I have listened carefully to the right hon. Gentleman's reasonable remarks, as I did to those of the hon. Member for South Staffordshire (Sir P. Cormack), but I have not yet heard any criticism from the Opposition about conditional access agreements, or any recognition that things had to change.

Mr. Brooke: The hon. Gentleman intervened earlier on my hon. Friend the Member for Guildford who was explaining why tax changes in the European Union are threatening to move the art market out of Europe. I shall come back to the hon. Gentleman's most recent intervention in a moment. The hon. Gentleman said previously that a number of powerful houses had passed into American hands, but they did so because American investors could see the virtue and value of those houses. The present chief executive of Sotheby's learned her trade in these activities sitting in the offices in New Bond street, which was to the great good of Anglo-American trade.

Mr. Woodward: I am sure that my right hon. Friend agrees that it is terribly important that the record shows that no one is saying that there should not be some change. All the relevant bodies recognise the great importance of bringing regulations up to date, but the phrase that is consistently used is "a sledgehammer to crack a walnut".

Mr. Brooke: I am grateful to my hon. Friend. He has helped me to respond to the latest intervention by the hon. Member for Edmonton (Mr. Love).
Over the past five or 10 years, we have of course been aware of comments and, it is fair to say, criticisms about the existing arrangements. It is not for me to speak for the Opposition. Indeed, my name is not even attached to the new clause, and it is for my Front-Bench colleagues to respond. However, I have no difficulty in recognising the need for the intelligent interaction that there has been in the past.
The Financial Secretary said that these matters had been fully discussed in Committee. I must confess that I was disappointed and distressed to find how unavailable Ministers had been to talk to the Historic Houses Association.

Dawn Primarolo: rose—

Mr. Brooke: I shall gladly give way to the hon. Lady, but she has to stand by what is on the record from Committee.

Dawn Primarolo: What the right hon. Gentleman says is not true. The Historic Houses Association met


representatives from the Treasury, and it is as a result of that meeting that the abolition of the one estate election was delayed for three years. There was a meeting on 24 June, and the HHA said in its newsletter that it has no complaints about access to the Treasury or its Ministers. I shall return to that point when I reply to the debate.

Mr. Brooke: I am grateful to the hon. Lady for saying that, although there seemed to have been some difficulty in Committee for a Minister even to be available, except on a telephone. However, if she assures me on the matter, I shall of course take her words in good faith.
The whole purpose of my speaking in this debate was to say that I hope that the Government will do more than they have so far been able to do, to reassure not only the Historic Houses Association but those who have such properties across the country that the situation will not deteriorate sharply. As my hon. Friend the Member for Witney said, the Department for Culture, Media and Sport—which once upon a time was called the Department of National Heritage—has passed effectively into the hands of the Treasury. If the situation does deteriorate sharply and many notable works of art are put on the market, it will be very unfortunate if that flood reaches the market at precisely the moment that the Treasury has decided that the amount of money available to the national heritage memorial fund is to be reduced.

Mr. Heathcoat-Amory: My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) has spoken with great authority on the subjects dealt with by the new clauses and amendments. I hope that the Financial Secretary will deal very seriously with the points that have been made.
I should like to support my hon. Friends on conditionally exempt heritage assets, and to endorse particularly the speeches by my hon. Friends the Members for Witney (Mr. Woodward) and for South Staffordshire (Sir P. Cormack). Although they differed in their tone, their message was the same: the current system works very well. Exemption from inheritance tax for those assets keeps them in private hands and relieves the state of a great deal of expenditure. If the assets were taken into public collections, they would have to be looked after, insured and secured at public expense.
The current system therefore saves the Exchequer a good deal of money, while allowing perfectly reasonable public access. I am not aware of any tide of discontent among connoisseurs or those interested in the arts and heritage who feel that the current system denies them the chance of looking at and studying those objects. I hope that the Government will at the very least implement the legislation with great sensitivity.
I congratulate my hon. Friend the Member for Guildford (Mr. St. Aubyn) on his extreme ingenuity not only in tabling a new clause on the second issue—VAT on art imports—but on the new clause being in order, as VAT is not usually debated during consideration of a Finance Bill. He and other hon. Members have drawn attention to the acute threat that will be faced by the British art market if, as planned, VAT on art imports is doubled next year. The industry employs more than 50,000 people. Although we are not supposing that the

industry will disappear—there will always be a domestic market for the exchange of works of art—the international market, on which London, but also very many provincial dealers, depend, will be gravely weakened if the VAT rate on imports is doubled.
Quite simply, art sent to London for sale will be diverted to other centres outside the European Union. Therefore, not only will the United Kingdom suffer, but the European Union as an institution will witness a decline in art sales. Such an action is also particularly stupid when we are trying to encourage repatriation to Europe and to the United Kingdom of works of art that were dispersed during previous waves of art exports, wars and revolutions.
When my noble friend Lord Cope was a Treasury Minister, he secured a review of such a tax threat before it took effect. I should like to ask the Minister what action the Government have taken to express the British Government's point of view to the Commission during the review period. Specifically, what discussions with other member states have been held during the British presidency?
We are supposed to have unparalleled influence in the European Union—that is what the Prime Minister tells us. We should like some evidence of that. What steps has he taken to defend a precious, almost unique national asset—the highly successful international market based in the United Kingdom which is threatened at best by erosion and at worst by a wholesale decampment to other non-EU centres such as Geneva and New York? Perhaps the Financial Secretary will bring us up to date on what the British Government are doing to protect our national interests in relation to the art market.

Dawn Primarolo: This has been an important debate, although some speeches have exaggerated somewhat the Government's attempts to secure public access to certain items of national heritage. Let me start by responding directly to the sentiments expressed by the hon. Member for South Staffordshire (Sir P. Cormack) as chairman of the all-party arts and heritage group, and the right hon. Member for Cities of London and Westminster (Mr. Brooke) in respect of balancing the need to secure public access to items of value and importance to our heritage with other interests. They acknowledged that the previous regime is not immune to criticism in respect of access by members of the public to particular items.
The Government propose that access by appointment only should be abolished and that access by appointment coupled with a measure of open access should remain. The maintenance and preservation needs of assets will remain key factors in deciding the level and type of access. That was made clear in Committee, and I make it clear again now.
The principle is that, with the conditional exemption, taxpayers' money will be provided to secure reasonable access to the items in question. That is what we are seeking to achieve. We are not talking about forcing anyone to do anything. The outrageous propositions that were made in Committee, and again this evening, about the likely outcome of our proposals are wrong, and amount to scaremongering. We would all wish to send a clear message from the House to that effect.

Mr. Woodward: Will the Minister give way?

Dawn Primarolo: Let me finish responding to the point that the hon. Gentleman raised in his speech.
Some owners will be worried about what open or extended access might mean. Let me emphasise again to the hon. Gentleman before I take his intervention that our primary objective is certainly not to force people out of the exemption scheme or jeopardise security of assets. It is to ensure that the public have proper access to tax-exempt assets. The new arrangements do not affect the basic requirement that access has to be reasonable.

Mr. Woodward: Will the Financial Secretary clarify an issue on that point? Let us consider the case of a 70-year-old lady who lives on her own in her flat and has enjoyed conditional exemption for a particular antique. Currently, individuals may come to see that, object by appointment. Under the changes, viewing by appointment only will not suffice. The onus will now be put on the 70-year-old lady to ensure that the object can be made available to the public. If she is unable to find a library, museum or gallery that will take it, will the current by-appointment arrangements still stand, ensuring that the 70-year-old lady will not be required to open her house to the public?

10 pm

Dawn Primarolo: I made it clear to the hon. Gentleman in Committee and shall make it clear again that access has to be reasonable. How it is decided will be the subject of the agreement reached between the Inland Revenue and the individual. If there is a dispute, the special commissioners will have the final say on whether access arrangements are reasonable. The hon. Gentleman knows that we have chosen our words to secure a balance between public access to an asset for which we are paying and the continued preservation of the item.
An owner will not be able to say that it is inconvenient for them ever to allow access to the item while requiring the conditional exemption. If taxpayers' money is taken for a conditional exemption, there must be a clear understanding that reasonable access to the item will be provided for the public. The fears about there being a flood of goods on to the market and a mass exodus of items will not materialise. We are not removing or applying any new tests to the assets that currently have the conditional exemption. We are ensuring that the access to which owners committed themselves when they accepted the arrangements for conditional exemption is reasonable and works.

Mr. Brooke: Will the Financial Secretary say a word about how she will monitor what happens? She says that my hon. Friend the Member for South Staffordshire (Sir P. Cormack) and I are exaggerating the potential. If we turn out to be right, how will she measure what is happening, and what will she do about it?

Dawn Primarolo: I did not include the right hon. Gentleman in my remarks about exaggeration. He and the Member for South Staffordshire made reasonable and measured contributions to this important debate. The Government have allowed a six-month period for negotiations with owners on access to assets. We have acknowledged that there are security issues and that there could be problems with the fragility of items such as manuscripts that would determine what might be considered reasonable access. We have agreed all the issues of access to an asset, but we have made it clear—

as, I think, the right hon. Member agrees—that if taxpayers' money is provided for conditional exemption to protect heritage and to give access to members of the public to enjoy that heritage, reasonable access must be available. Frankly, it is not in all cases at present.
There have been Adjournment debates and early-day motions on the matter, and repeated questions have been raised with me as the Minister. To my knowledge, at least two television programmes have been heavily critical of the scheme and have given specific examples where the current reasonable access arrangements are not in operation. As both the right hon. Member for Cities of London and Westminster and the hon. Member for South Staffordshire acknowledged, the scheme needs to be updated and improved.
That is all we are seeking to achieve with the measures. We are being understanding and sensitive to the issues. Therefore, amendments Nos. 72 and 73 are unnecessary. In fact, it is unacceptable that we should give a further tax reduction to those who may now decide that they perhaps never wanted to provide reasonable access, and were never forced to do so. Now, faced with reasonable access, they no longer want the conditional exemption, and they say that they want a tax deduction as well. That is what the amendments would do. That is not acceptable to the Government, and I ask the House to reject the amendments.
I would say in addition to the right hon. Member for Cities of London and Westminster that, in moving to the new reasonable public access arrangements by agreement, there is no requirement for an asset to have a test or to be requalified. Therefore, there is no reason why people should be forced out of the conditional exemption scheme. If they choose to leave it, that is up to them, but they will not get additional tax help from the Government on the basis of the value of that asset, and therefore the taxes liable to be paid on it.
I wish to refer to the one estate election. I have a letter from the Historic Houses Association, dated 26 June 1998, which shows the positive relationship that exists between the HHA and the Government. The letter states:
I read that further amendments…have been tabled by the Opposition, I imagine to be taken at Report stage of the Finance Bill. The Association would wish it to be on the record that these amendments have not been promoted by the HHA.
The letter continues:
On One Estate Election, whilst the Association's concerns also remain, they have been recorded both in writing to Ministers and at a meeting with the Paymaster General, for which the HHA was grateful.
The HHA met officials after it was announced that we were to abolish the one estate election. As a result of its representations, the abolition was delayed for three years, to 2001.
My hon. Friend the Paymaster General met the association on 24 June. It was clear that, although about 700 farms and various other pieces of estate were covered by the one estate election, there was a question whether 60 or 70 houses could be in some difficulty. It was agreed that the HHA would go away, work on the proposals, discuss them with the Government and come back to the Government to see how we could make progress on the matter. The association entirely accepts that one estate election should be abolished, that the relief is not suitable and that it was never intended to be a heritage relief.


Therefore, we need to continue the discussions with the association. Given that the abolition of one estate election takes place in 2001, we have time to work with the association on that.
I turn now to new clauses 10 and 11 and the possible increase in VAT on the art market from 2.5 per cent. to 5 per cent. I share hon. Members' concerns about the possible impact of that change, particularly on the London art market. All hon. Members will want to ensure that we do all that we can to protect that valuable and important market.
I know that the right hon. Member for Wells (Mr. Heathcoat-Amory) is particularly knowledgeable on this subject because of his personal interest. He has recently written a number of articles about the importance of the art market. He reminded the House that, in 1994, his predecessor as Paymaster General negotiated with the European Union a derogation on the imposition of VAT on the art market. The rate is 2.5 per cent. and is due to rise to 5 per cent. by 1999.
The right hon. Gentleman also referred to the review process. The officials at Customs and Excise have been actively involved in meetings and correspondence with the Commission about the terms and scope of the review that is to take place. The Department has been working closely with representatives of the art market. As I am sure the House expects, the Government are determined to ensure that we properly represent and defend the interests of the London art market. We are actively pursuing this matter. The right hon. Gentleman will know that we have been arguing about the review's terms of reference, and I am sure that he accepts that it is crucial to get those right before we allow the review to commence. That has been the focus of our work, and we shall continue with that work.
I congratulate the hon. Member for Guildford (Mr. St. Aubyn) on his new clause, but it will not work. It is drafted very narrowly, and I am sure that he would not want to damage the art market that he says he wants to protect. In tabling the new clause, he has enabled the House to have an important debate and the Government to put on record the value that we continue to place on the art market. In the negotiations on the review, we shall pursue the best interests of the Government, the country and the London art market. If the hon. Gentleman will not withdraw his new clause, I must recommend that the House votes against it and new clause 11.

Mr. Woodward: I am grateful to the Financial Secretary for those comments and the spirit in which they were made. None the less, as the hon. Lady put on record a letter from the Historic Houses Association, it is important that the record also records the sequence of events.
The committee met on Tuesday 19 May. One month later, it wrote to the Chairman of the Culture, Media and Sport Committee, saying;
Against the background of what we see as a clear case and compelling arguments, we are dismayed that to date the Paymaster General has not agreed to see us, that Chris Smith and his Ministers are not inclined to support our arguments, nor have our letters either been answered or acknowledged.

The hon. Lady stands before the House and says how reasonable her Department and officials have been, and I make no criticism whatever of her officials, but it is important that she does not let other people take the blame for a matter that is effectively her responsibility.
We should give credit to the Paymaster General, who allowed a meeting—albeit only last week. As a result of the meeting, the Inland Revenue has agreed to discuss the problem of open houses over the coming months. It is crucial, however, that the Financial Secretary is not allowed to suggest that all this was always going to happen. That was certainly not the case when HHA representatives telephoned the Paymaster General's office and were told, despite what was said in Committee in May, that the office was too busy and that the matter should be dealt with on the telephone. It is only thanks to the Paymaster General's efforts that the meeting took place at all.
This evening several changes and clarifications of how access to the V and A list will operate have been offered. We are grateful to the Financial Secretary for having listened to our proposals, and for the fact that they are now being implemented. It is significant, though, that the Government are still unable to produce the guidelines necessary for all the heritage bodies concerned. We look forward to seeing them in due course. In the meantime, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 16

TAX CREDIT COMPENSATION FOR CHARITIES WITH INVESTMENTS IN MIXED FUNDS

'.—For section 29 (2)(b) of the Finance (No. 2) Act 1997 there shall be substituted—

"(b) to any part of the qualifying distribution which, were it not for section 469 (2) of the Taxes Act 1988, falls to be regarded as income of section 505 bodies.".'.—[Mr. Fallon.]

Brought up, and read the First time.

Mr. Fallon: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this, it will be convenient to discuss the following: Amendment No. 53, in clause 47, page 26, line 22, leave out '31st December 2000' and insert '31st March 2001'.
Government amendments Nos. 1 to 3.
Amendment No. 54, in page 27, line 44, leave out '31st December 2000' and insert '31st March 2001'.

Mr. Fallon: I begin, perversely, with the Government amendments, which we welcome. I acknowledge, on behalf of my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) who raised the point in Committee, how far the Government have gone to extend the definition of what can be supplied in kind as medical equipment. My hon. Friend has another engagement, but he wanted me to convey his thanks to the Minister for meeting us on that point.
As for amendments Nos. 53 and 54, the Economic Secretary will recall our discussion in Committee on these points. Incidentally, I declare an interest, in that I am an


unremunerated director of a charity that may benefit from the amendments. The issue here was simple: the date at which this new and welcome extension of charitable relief was to begin was intended to allow for a two-and-three-quarter year period. It was proposed initially to bring it into operation on 1 April this year; its implementation has now been delayed until some time after Royal Assent. As the exemption is designed to end on 31 December 2000, charities have been given less than two and a half years. That also means that the exemption ends, rather uncomfortably, three quarters of the way through the tax year.
I suggested to the Minister in Committee that it might be helpful to let the exemption run on for the final three months—January, February and March of 2001. She kindly agreed to consider the matter, which is why we have tabled these amendments.
The purpose of new clause 16 is to help a different group of charities, such as the Thalidomide Trust, which are still disadvantaged by the withdrawal of tax credit relief for UK equity dividends. The withdrawal was in two stages: for pension funds and the like it was put into effect immediately, on the day of last July's Budget; but foreseeing the impact on charities, the Government allowed a breathing space until April 1999. A compensation scheme with a tapered relief for five years was also introduced.
The problem comes for those charities that invested in mixed funds. The Thalidomide Trust was one of the charities that invested in the Aquila funds. These were unit trusts specially created to facilitate efficient investment pooling for pension funds and their charity clients. That worked well because both types of client were entitled to the same tax exemption.
Before investing in those funds, the Thalidomide Trust checked very carefully with the Inland Revenue. On 16 December 1996, it was told that
the proposed investment in Aquila Funds would be accepted as 'qualifying' for
the exemption. However, as a result of the subsequent July Budget, the pension fund lost relief; charities whose investment was pooled with it lost the relief at the same time—a relief to which they would otherwise have been fully entitled.
You may wonder, Mr. Deputy Speaker, why we raise the matter almost a year after the deed was done. We do so because, on 22 June 1998, the Thalidomide Trust wrote to us, having had little joy from the Government. On 21 January 1998, the charity wrote to the Revenue; it wrote again on 30 March, and then it wrote to the Chancellor. Receiving no satisfaction, it wrote to us.
We took up the matter immediately. I raised it with the Financial Secretary to the Treasury at Question Time last Thursday, 25 June. My hon. Friends will now understand why the Financial Secretary has left the Chamber; they will recall that, when I raised the matter, she advised us not to make "cheap points". To be fair, perhaps she said that on the rebound. It certainly is not a cheap point to the Thalidomide Trust, which stands to lose some £75,000 because of the inadvertent drafting of a clause—or so it was led to believe.
The Thalidomide Trust wrote to the Chancellor earlier this month because, in the final correspondence that the charity had with the chairman of the Board of the Inland

Revenue, he made it clear that the compensation scheme to which I referred—the relief scheme—was not wholly drawn up by the Revenue, but had been expressly decided on by Ministers. In Mr. Montagu's letter to the Thalidomide Trust—he is the chairman of the Board of the Inland Revenue—he revealed that Ministers were aware of the position of charities that had invested in mixed funds. Apparently, the legislation had to be narrowly drawn in order to avoid complexity—not something that the Government were successful in avoiding elsewhere in the Finance (No. 2) Act 1997. However, I put that to one side.
The consequences were clear. The Thalidomide Trust—other charities may well be in such a position—has lost about £70,000. That is a serious loss because, in a few years' time, the trust will receive no further capital payments. The House needs no reminding that more than 400 people were disabled by the thalidomide drug. They have continuing and very expensive needs.
The previous Government recognised the special difficulty of charities such as the Thalidomide Trust. When, in 1996, it was apparent that the trust had insufficient capital to maintain the distributions to beneficiaries at existing levels, the previous Conservative Government chipped in some £7 million. Tonight, we are talking about £70,000 being taken from it. That is not a huge sum. I should have thought that it was perfectly possible, with all the technical expertise that is available to the Inland Revenue, for the compensation scheme to be adjusted. I very much hope, therefore, that the Minister will reconsider.

Mr. Gibb: As events unfold since the July Budget last year, more and more injustices are becoming apparent from the decision taken last July to end the repayment of dividend tax credits. We are already aware that, as a result of that one decision, pension funds—the funds that will give rise to the incomes of elderly people in their retirement—have been robbed to the tune of £5 billion a year. That means that, unless people increase their contributions to their pension funds, they will lose substantial sums on retirement.
There is considerable evidence that people are not aware of what the Government did to their pension funds last year, and they will have a nasty shock in 20 years if they have not increased their pension contributions, or their employers have not increased their contributions by about 11 per cent. on average. Those pension funds will be inadequately funded, and people's pensions in retirement will be less than they would otherwise have been, and less than people expected.
We have also heard of the injustice arising from the decision taken last July about non-taxpaying pensioners—300,000 of them—who, on average, will be £75 a year worse off as a result of that measure. Earlier today, we heard from constituents throughout the land who will suffer real hardship next April when the measure comes into force, and people will no longer be able to reclaim £100, £200, £300 or £400 a year from their dividend income.
We know already of the injustice being faced by charities generally as a result of the measure taken last July to end the repayment of dividend tax credits. Charities will lose £400 million a year, despite the taper, because tapers eventually taper to an end. At that time,


charities will lose significant income. Some will suffer very badly indeed, especially those that rely on their investment income from endowments established over the years.
As a result of a letter from the Thalidomide Trust, a further injustice has become apparent, which arises for charities that have invested in mixed funds. One wonders how many further injustices will arise from that one measure. We have seen the wholesale restructuring of the corporation tax regime as a result of a measure taken in the Finance Act last year.
The Thalidomide Trust is a worthwhile organisation which helps to deal with the children affected by the thalidomide drug 30 years ago. As a person of 37 years of age, born at the time that the drug was about, but for the grace of God, I could easily have been one of those children. Contemporaries of my mother took the drug, and people of my age are acutely aware of the damage that it did to so many people in this country. As a result of a measure taken in July 1997, the Thalidomide Trust will lose £70,000 a year.
The matter has been handled callously; there seems to be no sensitivity on the Government's part. It seems that they are so determined to fulfil their pledge of winning two election terms that they intend to fulfil their spending pledges by stealthily taxing pension funds and charitable organisations. They do not care about the consequences for non-taxpaying individuals—the 300,000 pensioners. They do not care what effect their measures will have on the real value of pension funds. Judging from correspondence from the Revenue, the Government clearly do not care about the effect on the Thalidomide Trust.
I quote from another letter from the chairman of the Inland Revenue to the Thalidomide Trust. He states:
I am afraid that there is nothing I can helpfully add. Ministers took their policy decision in full knowledge of the implications and it is for us to give effect to it.
Ministers knew what they were doing; it was not an error or oversight. Their action has caused enormous damage to the Thalidomide Trust, and I hope very much that the Minister will tell the House tonight that she intends to reverse the decision and accept the amendments, or propose another measure that will alleviate the £70,000 loss endured by that important charitable trust.

The Economic Secretary to the Treasury (Mrs. Helen Liddell): I shall begin with the three Government amendments. I am grateful for the acknowledgement by the hon. Member for Sevenoaks (Mr. Fallon) of the line that the Government took in Committee. We chose to introduce three new amendments this evening in order to make incontrovertibly clear what I said in Committee about extending the scope of the benefit that marks the millennium. In Committee, I explicitly read the Government's view on to the record. However, in order to give those who are so generous as to support charity in this way the added reassurance that medical provision would be included, we thought that it would be wise to introduce the three new amendments. I am grateful for the support of Opposition Members.
In relation to amendments Nos. 53 and 54, we had a lengthy discussion in Committee about the date of the millennium. I must admit that we had some fun in

Committee discussing the millennium date definition advanced by the hon. Member for Kingston and Surbiton (Mr. Davey). He seemed to think that the millennium was a movable feast and that perhaps, like the synod of Whitby, we could convene and discuss a date that would be the millennium. As a consequence, both the Government and the official Opposition reached rare agreement about the date of the millennium.
10.30 pm
I said that I would reconsider the case made by the hon. Member for Sevenoaks (Mr. Fallon) for extending the provision for three months beyond the date of the millennium. However, I do not think that the case has been made for that extension. The measure is designed to focus giving for a specific purpose on one specific date: it allows people to mark the millennium by assisting those who are in poverty in less advantaged parts of the world. The scheme must have a cut-off date, and that date coincides logically with the millennium.
I remind the hon. Gentleman, as I did earlier in Committee, about the continuing investigation into the future of charities taxation. Anything we do in relation to this millennium giving does not prejudge in any way what could happen under the review of charities taxation. There is no reason to believe that there will be a less advantageous system for giving after the millennium because of the ending of this millennium project about which the Chancellor feels so strongly. For those reasons, I hope that the hon. Gentleman will not press the amendments. That would be unfortunate, given our commonality of purpose in relation to this scheme, which would allow the generous people of this country to mark the millennium in a way that gives the greatest benefit to the poorest in our world.
I turn to proposed new clause 16. The Opposition have introduced an exceptionally narrow point on Report which, as the hon. Gentleman pointed out, is concerned with investments by charities through mixed unauthorised unit trusts. The new clause is not very robust technically, but I will not concentrate on its technical aspects. I turn to the substantive argument to answer the hon. Gentleman's points.
The wider point is that charities have a range of options when investing their money. We made quite sure that the advisers to charities had a year to digest the implications of our proposals last year for tax credits on dividends. What is more, we have given them almost as long again to prepare for next April when the proposals come fully into force. Therefore, charities have the opportunity to put their funds into investments in such a way as to maximise tax benefits while maximising their returns.
The hon. Gentleman referred to the Thalidomide Trust and, surprisingly, introduced some rather unfortunate inaccuracies in relation to that trust. I have in front of me the first letter received by Ministers in relation to that matter dated 22 June 1998, eight days ago—a letter to my right hon. Friend the Chancellor of the Exchequer. That correspondence relates to the contact that there has been between the Thalidomide Trust and the Revenue.
The point at issue about the advice that the Revenue gave to the Thalidomide Trust relates to events in December 1996, when the Thalidomide Trust contacted the Revenue to ensure that its investments were in no way part of a tax avoidance scheme. The Revenue's response


was the kind of confirmation that it required. But there is no way in which the Revenue could give any guarantees about future tax treatment, particularly as this happened under the previous Government. There was a general election, and the present Government decided to correct the anomaly that had existed in relation to tax credits.
I have specifically asked Revenue officials whether they have evidence of any other charities that have encountered the same difficulty, and we know of none. The Revenue cannot be responsible for the nature of the decisions that charities make about how to invest their funds. We have deliberately gone to considerable lengths to allow charities the opportunity to arrange their portfolios in such a way that they maximise the benefits to themselves.

Mr. Peter Bottomley: The hon. Lady rightly confirms what my hon. Friend the Member for Sevenoaks (Mr. Fallon) said about 1996, when the Revenue confirmed that the tax would not be levied on the charity's investment, and she rightly confirms that this month, Ministers received a letter. Will she give the House her view on what my hon. Friend said about the chairman of the Revenue, Mr. Montagu, informing the charity that six months ago, Ministers knew the effects of what they were doing on the charity's investment?

Mrs. Liddell: The hon. Gentleman may not have been present during debates on the previous Finance Bill when these matters were extensively debated. The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), with his technical expertise, has long waxed eloquent on these matters. We recognised at that time that there would be an impact on charities, which is why preferential treatments for charities were built into that legislation to give them an opportunity to rearrange their portfolios in such a way that they could maximise the benefits to themselves.
That was a rational and clear-cut way in which to behave, given that an anomaly in the taxation system had to be corrected. It was the Conservative Government who began the process of the correction of tax credits. Therefore, one regrets that the decisions that the Thalidomide Trust took in relation to its investments have meant that it was liable for more tax than it thought. At the end of the day, however, the advice given to the Thalidomide Trust by the Revenue related to a specific inquiry, before the election of this Government, about whether the trust was becoming involved in a tax avoidance measure.
The Conservative case is not well made in relation to this matter. The Government, in giving charities the opportunity to seek independent advice on how they should place their investments, gave charities as much opportunity as possible to take the right kind of advice so that they could configure their portfolios in the most appropriate way. Therefore, I cannot accept the new clause, because it would mean making a one-off provision merely to take into account a single sort of investment. Charities will be able to find a range of secure and productive homes for their money. I urge the hon. Gentleman to withdraw new clause 16 so that we can continue with the consensus that we have enjoyed in respect of this important part of the Bill.

Mr. Fallon: With the leave of the House, Mr. Deputy Speaker. In respect of amendments Nos. 53 and 54, may

I tell the Economic Secretary that she is, as we know, a hard lady? We have tried to put our point three times, and each time she has resisted, so I shall happily withdraw it.
In respect of new clause 16 and the problems that the Thalidomide Trust faces, her response was not at all satisfactory. First, she suggested that there were inaccuracies in what I said. I made it clear that the advice from the Revenue was given in December 1996. There is no dispute about that: I have the words, and I quoted them, so I hope that she will withdraw any suggestion that I was implying that the advice was given in a different December.

Mrs. Liddell: I am glad that the hon. Gentleman has clarified the situation, and I am happy to accept his point. If I have misunderstood him, I am happy to withdraw my remarks, but I hope that he will withdraw his remarks about the Government not being concerned about the matter, and about Ministers failing to respond, given that we received the letter only on 22 June.

Mr. Fallon: I shall deal with that point in a moment, but let me make it clear that I said at the start of my remarks that the date was December 1996, and it was. I am glad that the Economic Secretary has withdrawn the suggestion that that was inaccurate.
Ministers may have been informed about the issue only on 22 June; so were we, but we have been doing something about it. We raised the issue at Question Time last week, and have had a new clause drafted and debated within seven days of receiving the Thalidomide Trust's letter. The hon. Lady, with all her officials in the Treasury, could have tabled a new clause, so it is nonsense to suggest that she has not had time to consider the matter.

Mrs. Liddell: I am sorry, but I am afraid that the hon. Gentleman is still obscuring the main point. I am not saying that the Government have not had time to consider the point. My general point is that we received correspondence from the Thalidomide Trust on 22 June; my substantive point relates to the fact that the new clause would introduce a narrow change for a specific sort of investment. That is the substance of my remarks and, for that reason, I ask hon. Members to oppose the new clause, if the hon. Gentleman will not withdraw it.

Mr. Fallon: The Economic Secretary is now playing for time and flannelling. The plain fact is that she is not prepared to do anything in respect of the Thalidomide Trust. She has confessed that this is the only case of which the Treasury is aware; if it is the only case, it is a good one. For the sake of £70,000 for one of the most deserving charities, which has been taken away by the Government, I ask my hon. Friends to support the new clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 171, Noes 279.

Division No. 320]
[10.42 pm


AYES


Ainsworth, Peter (E Surrey)
Baker, Norman


Allan, Richard
Ballard, Jackie


Amess, David
Beggs, Roy


Ancram, Rt Hon Michael
Bercow, John


Arbuthnot, James
Beresford, Sir Paul


Atkinson, David (Bour'mth E)
Body, Sir Richard


Atkinson, Peter (Hexham)
Boswell, Tim






Bottomley, Peter (Worthing W)
Kirkwood, Archy


Brady, Graham
Laing, Mrs Eleanor


Brake, Tom
Lait, Mrs Jacqui


Brand, Dr Peter
Lansley, Andrew


Brazier, Julian
Leigh, Edward


Breed, Colin
Letwin, Oliver


Brooke, Rt Hon Peter
Lewis, Dr Julian (New Forest E)


Browning, Mrs Angela
Lidington, David


Bruce, Ian (S Dorset)
Lilley, Rt Hon Peter


Bruce, Malcolm (Gordon)
Livsey, Richard


Burnett, John
Lloyd, Rt Hon Sir Peter (Fareham)


Burns, Simon
Llwyd, Elfyn


Campbell, Menzies (NE Fife)
Loughton, Tim


Cash, William
Luff, Peter


Chapman, Sir Sydney (Chipping Barnet)
MacGregor, Rt Hon John



McIntosh, Miss Anne


Chidgey, David
MacKay, Andrew


Chope, Christopher
Maclean, Rt Hon David


Clappison, James
McLoughlin, Patrick


Clark, Rt Hon Alan (Kensington)
Maples, John


Clifton-Brown, Geoffrey
Maude, Rt Hon Francis


Collins, Tim
May, Mrs Theresa


Cormack, Sir Patrick
Michie, Mrs Ray (Argyll & Bute)


Cotter, Brian
Moore, Michael


Cran, James
Morgan, Alasdair (Galloway)


Curry, Rt Hon David
Moss, Malcolm


Davey, Edward (Kingston)
Nicholls, Patrick


Davis, Rt Hon David (Haltemprice)
Norman, Archie


Day, Stephen
Öpik, Lembit


Dorrell, Rt Hon Stephen
Ottaway, Richard


Duncan, Alan
Page, Richard


Duncan Smith, Iain
Paice, James


Emery, Rt Hon Sir Peter
Paterson, Owen


Evans, Nigel
Pickles, Eric


Ewing, Mrs Margaret
Prior, David


Faber, David
Randall, John


Fallon, Michael
Redwood, Rt Hon John


Fearn, Ronnie
Rendel, David


Flight, Howard
Robathan, Andrew


Forth, Rt Hon Eric
Robertson, Laurence (Tewk'b'ry)


Foster, Don (Bath)
Ross, William (E Lond'y)


Fox, Dr Liam
Rowe, Andrew (Faversham)


Fraser, Christopher
Ruffley, David


Garnier, Edward
Russell, Bob (Colchester)


George, Andrew (St Ives)
Sanders, Adrian


Gibb, Nick
Sayeed, Jonathan


Gill, Christopher
Simpson, Keith (Mid-Norfolk)


Gillan, Mrs Cheryl
Smith, Sir Robert (W Ab'd'ns)


Gorman, Mrs Teresa
Soames, Nicholas


Gorrie, Donald
Spicer, Sir Michael


Gray, James
Spring, Richard


Green, Damian
Stanley, Rt Hon Sir John


Greenway, John
Steen, Anthony


Grieve, Dominic
Streeter, Gary


Gummer, Rt Hon John
Stunell, Andrew


Hamilton, Rt Hon Sir Archie
Swayne, Desmond


Hammond, Philip
Swinney, John


Hancock, Mike
Syms, Robert


Harris, Dr Evan
Tapsell, Sir Peter


Harvey, Nick
Taylor, Ian (Esher & Walton)


Hawkins, Nick
Taylor, John M (Solihull)


Hayes, John
Taylor, Sir Teddy


Heald, Oliver
Townend, John


Heath, David (Somerton & Frome)
Tredinnick, David


Heathcoat-Amory, Rt Hon David
Trend, Michael


Hogg, Rt Hon Douglas
Tyler, Paul


Horam, John
Tyrie, Andrew


Hunter, Andrew
Viggers, Peter


Jack, Rt Hon Michael
Wallace, James


Jackson, Robert (Wantage)
Wardle, Charles


Jenkin, Bernard
Waterson, Nigel


Johnson Smith, Rt Hon Sir Geoffrey
Webb, Steve



Wells, Bowen


Jones, Nigel (Cheltenham)
Welsh, Andrew


Key, Robert
Whittingdale, John


Kirkbride, Miss Julie
Widdecombe, Rt Hon Miss Ann





Wilkinson, John
Young, Rt Hon Sir George


Willetts, David



Willis, Phil
Tellers for the Ayes:


Wilshire, David
Sir David Madel and


Woodward, Shaun
Mrs. Caroline Spelman.


Yeo, Tim



NOES


Adams, Mrs Irene (Paisley N)
Cummings, John


Ainger, Nick
Cunliffe, Lawrence


Ainsworth, Robert (Cov'try NE)
Cunningham, Jim (Cov'try S)


Alexander, Douglas
Dalyell, Tam


Anderson, Janet (Rossendale)
Davey, Valerie (Bristol W)


Armstrong, Ms Hilary
Davidson, Ian


Ashton, Joe
Davies, Rt Hon Denzil (Llanelli)


Atkins, Charlotte
Davies, Rt Hon Ron (Caerphilly)


Austin, John
Davis, Terry (B'ham Hodge H)


Ballard, Jackie
Dawson, Hilton


Banks, Tony
Dean, Mrs Janet


Bayley, Hugh
Denham, John


Beard, Nigel
Dismore, Andrew


Beckett, Rt Hon Mrs Margaret
Dobbin, Jim


Begg, Miss Anne
Donohoe, Brian H


Bennett, Andrew F
Doran, Frank


Benton, Joe
Dowd, Jim


Bermingham, Gerald
Drew, David


Berry, Roger
Eagle, Angela (Wallasey)


Betts, Clive
Eagle, Maria (L'pool Garston)


Blears, Ms Hazel
Ellman, Mrs Louise


Blizzard, Bob
Ennis, Jeff


Boateng, Paul
Etherington, Bill


Borrow, David
Field, Rt Hon Frank


Bradley, Keith (Withington)
Flint, Caroline


Bradley, Peter (The Wrekin)
Foster, Rt Hon Derek


Bradshaw, Ben
Foster, Michael Jabez (Hastings)


Brinton, Mrs Helen
Foster, Michael J (Worcester)


Brown, Rt Hon Nick (Newcastle E)
Foulkes, George


Brown, Russell (Dumfries)
Galbraith, Sam


Browne, Desmond
Gapes, Mike


Buck, Ms Karen
Gardiner, Barry


Burden, Richard
George, Bruce (Walsall S)


Burgon, Colin
Gibson, Dr Ian


Byers, Stephen
Gilroy, Mrs Linda


Caborn, Richard
Godman, Dr Norman A


Campbell, Alan (Tynemouth)
Goggins, Paul


Campbell, Mrs Anne (C'bridge)
Golding, Mrs Llin


Campbell, Ronnie (Blyth V)
Gordon, Mrs Eileen


Cann, Jamie
Grant, Bernie


Caplin, Ivor
Griffiths, Jane (Reading E)


Casale, Roger
Griffiths, Nigel (Edinburgh S)


Chapman, Ben (Wirral S)
Grogan, John


Chaytor, David
Gunnell, John


Chisholm, Malcolm
Hain, Peter


Clapham, Michael
Hall, Mike (Weaver Vale)


Clark, Rt Hon Dr David (S Shields)
Hamilton, Fabian (Leeds NE)


Clark, Dr Lynda (Edinburgh Pentlands)
Hanson, David



Heal, Mrs Sylvia


Clark, Paul (Gillingham)
Henderson, Ivan (Harwich)


Clarke, Charles (Norwich S)
Heppell, John


Clarke, Tony (Northampton S)
Hewitt, Ms Patricia


Clelland, David
Hill, Keith


Clwyd, Ann
Hinchliffe, David


Coaker, Vernon
Hoey, Kate


Coffey, Ms Ann
Home Robertson, John


Cohen, Harry
Hoon, Geoffrey


Coleman, Iain
Howarth, Alan (Newport E)


Colman, Tony
Howarth, George (Knowsley N)


Connarty, Michael
Hoyle, Lindsay


Cook, Frank (Stockton N)
Hughes, Ms Beverley (Stretford)


Corbyn, Jeremy
Hughes, Kevin (Doncaster N)


Corston, Ms Jean
Humble, Mrs Joan


Cousins, Jim
Hutton, John


Cranston, Ross
Iddon, Dr Brian


Crausby, David
Illsley, Eric






Jackson, Ms Glenda (Hampstead)
Pike, Peter L


Jackson, Helen (Hillsborough)
Plaskitt, James


Jamieson, David
Pope, Greg


Jenkins, Brian
Pound, Stephen


Jones, Mrs Fiona (Newark)
Powell, Sir Raymond


Jones, Dr Lynne (Selly Oak)
Prentice, Ms Bridget (Lewisham E)


Jones, Martyn (Clwyd S)
Prentice, Gordon (Pendle)


Jowell, Ms Tessa
Primarolo, Dawn


Keeble, Ms Sally
Prosser, Gwyn


Keen, Alan (Feltham & Heston)
Purchase, Ken


Keen, Ann (Brentford & Isleworth)
Quin, Ms Joyce


Khabra, Piara S
Quinn, Lawrie


Kidney, David
Radice, Giles


Kilfoyle, Peter
Rammell, Bill


King, Andy (Rugby & Kenilworth)
Reed, Andrew (Loughborough)


Kingham, Ms Tess
Reid, Dr John (Hamilton N)


Kumar, Dr Ashok
Robertson, Rt Hon George (Hamilton S)


Ladyman, Dr Stephen



Lepper, David
Roche, Mrs Barbara


Leslie, Christopher
Ross, Ernie (Dundee W)


Lewis, Terry (Worsley)
Rowlands, Ted


Liddell, Mrs Helen
Roy, Frank


Linton, Martin
Ruddock, Ms Joan


Livingstone, Ken
Russell, Ms Christine (Chester)


Lloyd, Tony (Manchester C)
Ryan, Ms Joan


Lock, David
Salter, Martin


Love, Andrew
Savidge, Malcolm


McAllion, John
Sedgemore, Brian


McAvoy, Thomas
Shaw, Jonathan


McCabe, Steve
Sheerman, Barry


McCafferty, Ms Chris
Sheldon, Rt Hon Robert


McCartney, Ian (Makerfield)
Short, Rt Hon Clare


McDonagh, Siobhain
Simpson, Alan (Nottingham S)


McDonnell, John
Singh, Marsha


McFall, John
Skinner, Dennis


McGuire, Mrs Anne
Smith, Rt Hon Andrew (Oxford E)


McKenna, Mrs Rosemary
Smith, Miss Geraldine (Morecambe & Lunesdale)


McLeish, Henry



McNulty, Tony
Smith, Llew (Blaenau Gwent)


MacShane, Denis
Soley, Clive


Mactaggart, Fiona
Southworth, Ms Helen


Mahon, Mrs Alice
Spellar, John


Mandelson, Peter
Squire, Ms Rachel


Marsden, Gordon (Blackpool S)
Steinberg, Gerry


Marsden, Paul (Shrewsbury)
Stevenson, George


Marshall, David (Shettleston)
Stewart, Ian (Eccles)


Marshall, Jim (Leicester S)
Stoate, Dr Howard


Marshall-Andrews, Robert
Stott, Roger


Martlew, Eric
Strang, Rt Hon Dr Gavin


Maxton, John
Stringer, Graham


Meacher, Rt Hon Michael
Stuart, Ms Gisela


Meale, Alan
Sutcliffe, Gerry


Merron, Gillian
Taylor, Rt Hon Mrs Ann (Dewsbury)


Michael, Alun



Milburn, Alan
Temple-Morris, Peter


Miller, Andrew
Thomas, Gareth R (Harrow W)


Mitchell, Austin
Timms, Stephen


Moffatt, Laura
Touhig, Don


Morgan, Ms Julie (Cardiff N)
Trickett, Jon


Morgan, Rhodri (Cardiff W)
Truswell, Paul


Morris, Ms Estelle (B'ham Yardley)
Turner, Dennis (Wolverh'ton SE)


Mudie, George
Turner, Dr Desmond (Kemptown)


Mullin, Chris
Twigg, Derek (Halton)


Murphy, Jim (Eastwood)
Vaz, Keith


O'Brien, Bill (Normanton)
Vis, Dr Rudi


O'Brien, Mike (N Warks)
Walley, Ms Joan


Olner, Bill
Wareing, Robert N


O'Neill, Martin
Watts, David


Organ, Mrs Diana
White, Brian


Osborne, Ms Sandra
Whitehead, Dr Alan


Palmer, Dr Nick
Wicks, Malcolm


Pearson, Ian
Williams, Alan W (E Carmarthen)


Pendry, Tom
Winnick, David


Pickthall, Colin
Wood, Mike





Woolas, Phil
Tellers for the Noes:


Wright, Anthony D (Gt Yarmouth)
Jane Kennedy and


Wright, Dr Tony (Cannock)
Mr. Jon Owen Jones.

Question accordingly negatived.

New clause 18

CAPITAL ALLOWANCES FOR SEA GOING VESSELS

'After subsection (6) of section 38B of the Capital Allowances Act 1990 (which provides for expenditure excluded from the application of the Chapter), there shall be inserted the following subsection:—

"(7) For the purposes of subsection (3)(a) above, a ship shall not be an offshore installation if it is a floating production storage and offtake unit or drillship being a mobile vessel engaged in the exploration, exploitation, storage or transportation of mineral resources".'.—[Mr. Burnett.]

Brought up, and read the First time.

Mr. Burnett: On this melancholy evening, I beg to move, That the clause be read a Second time.
The object of the new clause is to remove the uncertainty and discrimination that have impacted on the British shipping industry and our shipyards since the Finance Act 1997—the last Conservative Finance Act. That Act reduced from 25 to 6 per cent. the rate of writing-down allowances on what are defined as long-life assets.
I am delighted to declare a constituency interest. My constituency is fortunate enough to contain Appledore Shipbuilders. The company has a skilled and dedicated management and work force; it is a company of not just regional but national and, indeed, international importance. The House will be surprised to learn that it is one of only two medium-sized shipyards left in the country, the other being Ferguson in Port Glasgow. I am happy to see that the hon. Member for Greenock and Inverclyde (Dr. Godman) is present: he has a great interest in, and much knowledge of, the shipbuilding industry, and many of his constituents work at Ferguson.
British shipyards need orders, and they need them now. In February 1997, when he was shadow Minister for energy and industry, the current Minister for Science, Energy and Industry—the hon. Member for Leeds, West (Mr. Battle)—spoke of the Labour party's positive vision for the United Kingdom sector of the continental shelf, and of the vital industries and jobs that support that sector. One of those crucial industries is shipbuilding, which is heavily dependent on the construction of floating production storage and offtake facilities—FPSOs—and other assets such as drill ships.
The capital allowance rules in the Finance Act 1997, which reduced capital allowances for long-life assets to 6 per cent., are on machinery and plant which, when new, are expected to have a useful economic life of at least 25 years. Sea-going ships continue to qualify for the 25 percent. writing-down allowances. Unfortunately, for these purposes "sea-going ship" excludes any ship that is or would be an offshore installation under the Mineral Workings (Offshore Installations) Act 1971.
According to the previous Financial Secretary, the right hon. Member for Fylde (Mr. Jack), ships and railway assets were to be excluded from the long-life assets rule to promote investments in shipping and the rail industry.


Before the Finance Act 1997, British shipyards were becoming increasingly dependent on the offshore oil and gas industry for work. Last year, Harland and Wolff was constructing one FPSO, two drill ships and two rig conversions. Appledore was constructing two offshore vessels, Ferguson four offshore vessels and Kvaerner in Govan six offshore vessels. A total of 17 offshore vessels were under construction last year in British shipyards.
That is important work, but it is in jeopardy as a result of the restricted capital allowances for offshore sea-going vessels. Under the new rules, capital allowances on long-life assets are extremely meagre—6 per cent. on a reducing-balance basis. Therefore, for every £100 invested, 6 per cent., or £6, is claimable in year one. In year two, it is not the £6 again; it is 6 per cent. of what is left over—£94. It takes an age to write off the cost of the asset for tax purposes. It is not done even on a straight-line basis—that is, 6 per cent. of the total sum in each year.
Therefore, although bringing the allowances for the offshore vessels back to the old basis would be far better, it would still be only 25 per cent. on a reducing-balance basis—in year one, for every £100 invested, £25 would qualify; in year two, 25 per cent. of the residual sum, which is £75, would qualify, and so on. With my new clause, it is still going to take at least eight years or so to write off the asset for tax purposes.

Mr. John Wilkinson: The hon. Gentleman is making an important point and a significant speech because the long-life asset provisions of the Finance Act 1997 are damaging the offshore rig industry, and so on, and also doing considerable damage to the air transport industry. He will be aware that I introduced an Adjournment debate on that subject. I hoped that the Liberal Democrat party might have pursued that area of interest, which is crucial not just for air transport, but for the air manufacturing industry.

11 pm

Mr. Burnett: I am grateful to the hon. Gentleman for making that point. He is correct, and I am delighted to associate myself and my party with his concerns about further problems in relation to the aircraft industry; but the new clause relates to sea-going industries. If he wishes to table an amendment—I am afraid that it is probably too late now, but it might be possible for next year's Finance Bill—I am sure that we will see fit to support it.
The Institute for Fiscal Studies has cast doubt on whether the projected yields from the introduction of long-life assets would ever be achieved. In any event, the new clause will account only for a small fraction of the anticipated revenue. I hope that the House will support it.

Dr. Norman A. Godman: I offer my compliments to the hon. Member for Torridge and West Devon (Mr. Burnett). Speaking as an ex-shipyard worker, a shipwright by trade, I confirm that the yard in his constituency, Appledore, is first class. Unfortunately, from time to time, it has won orders at the expense of shipyards in my neck of the woods—the lower and upper Clyde—but it is an important new clause.
My hon. Friend the Economic Secretary knows well the two yards on the Clyde that the hon. Member mentioned—Ferguson on the lower Clyde and Kvaerner in Govan, Glasgow; some of her constituents work in both yards. I reckon that some several hundred of my constituents, highly skilled workers, are employed at Ferguson and Kvaerner. For that constituency reason, I am keen to offer my sympathy to the new clause.
It is important that owners of offshore supply vessels such as those that the hon. Member for Torridge and West Devon mentioned, are given support because, in fairness to them, they almost always place their orders in UK shipyards, unlike many other UK vessel owners, who go overseas, where there are often hidden subsidies that enable those yards to secure orders against our yards. Those offshore support vessel owners have a fine record in placing their orders in our constituencies. I wish that they would place more orders in mine than in the hon. Gentleman's, but we defend our own corners.
The hon. Gentleman mentioned 17 such vessels. Kvaerner, which is notable for its specialist skills in the building of liquefied petroleum gas tankers, is now building these vessels. If I had had the opportunity, I would have tabled an amendment to the new clause to the effect that no support should be given to shipowners who place their orders overseas. The House will have to forgive me for being ethnocentric about this, but I think that we should look after our own shipyards. Whenever I have met shipowners, I have told them that, if they are seeking our assistance to argue the case in the House for the kind of financial help that they receive in other countries—especially the Scandinavian countries—they have to give us an assurance in return that they will make every attempt to place their orders in our yards.
The new clause refers to
a floating production storage and offtake unit".
The hon. Gentleman mentioned Harland and Wolff in Belfast, which is an important employer in that bedevilled Province. It employs about 1,800 men and women, I think. In my constituency, UIE of Clydebank is converting such a vessel—and it is a vessel. The hon. Gentleman is right to say that it is more than a production platform. I hope that my hon. Friend the Minister will take that on board—I should not have said that, but I hope that the House will forgive the pun—because these contracts are superb contracts to win. Let me give an example. The vessel being built now in Greenock is employing upwards of 1,000 highly skilled men. I hope that UIE of Clydebank will secure more of those orders.
I can see that the Government Whip is getting a bit anxious. Perhaps he is gloomy because his team went down tonight. I cannot do anything about that, being a Scots Member of Parliament, but he has my commiserations.
Surely some sympathy must be shown to shipowners who place their orders in UK shipyards. We all benefit if they do. It should be emphasised that it is not only maritime communities that benefit from these orders but communities miles away from the coastline—for example, the communities that provide the electronic equipment that goes into making these vessels. I simply plead for sympathy from the Minister, and I hope that my brief speech pleases the grumpy Whip.

Mrs. Liddell: This has been a brief but very interesting debate. I commend the hon. Member for Torridge and West Devon (Mr. Burnett) for raising this issue. I especially commend my hon. Friend the Member for Greenock and Inverclyde (Dr. Godman) for his contribution. As he knows, I live but two miles from the Ferguson yard in Port Glasgow and about six miles from the Kvaerner yard in Govan. My constituents do indeed work in both yards.
The first few years of my working life were connected with trying to secure the long-term future of shipbuilding on the Clyde. As a young economist, and with my right hon. Friend the Secretary of State for Defence, I spent probably two to three years dealing with the problems being experienced on the Clyde as a consequence of the rundown of shipbuilding and with the problems of Upper Clyde Shipbuilders. I therefore approach the issue with some sympathy, but I am not able to accept the new clause. [Interruption.] I hope that hon. Gentlemen will allow me to finish this serious point. I am not able to accept the new clause, but I hope that I may be able to provide some information that is of comfort to the hon. Member for Torridge and West Devon and to my hon. Friend the Member for Greenock and Inverclyde.
The aim of the long-life asset measure was to improve the neutrality of the tax system by bringing the tax treatment of such assets more closely into line with the actual rate of depreciation. Ships and railways were both exempted until 2010 because of the special circumstances in each of those sectors. Long-life assets qualify for capital allowances at a rate of 6 per cent. a year, whereas, as the hon. Gentleman said, other plant and machinery qualify for allowances at a rate of 25 per cent. a year.
The exclusion was aimed at the merchant shipping sector, and it would be very difficult to extend it to cover floating production storage and off-take units or drilling rigs. Annual capital allowances at 25 per cent. would write off nearly half the cost of an asset in the first two years, and three quarters of the cost in the first five years—which clearly is not neutral treatment for assets that have a working life of more than 25 years. The capital allowances would outstrip by far the actual depreciation rate.
If a floating production storage and off-take unit or a drilling rig has an expected economic life of more than 25 years, it is clearly right that it should not qualify for the 25 per cent. capital allowances. Conversely, if the asset has an expected economic life of less than 25 years, it will already be outside the scope of the long-life asset rules.
This may be where I can give the hon. Member for Torridge and West Devon some comfort. We have not seen any current evidence that the provisions are discouraging investment in the North sea. However, the Inland Revenue has made it clear to the oil industry that it is prepared to agree in advance the economic life of assets that are used in the industry, and that each asset will be considered individually, to arrive at a reasonable estimate of expected economic life. Given the overall aim of the long-life asset rules, that is an appropriate way of dealing with the units that he mentioned—floating production storage and off-take units and drilling rigs.
I hope that, with that comfort, the hon. Gentleman might choose to withdraw his new clause. If not, I regret to say that I shall have to ask the House to resist it.

Mr. Burnett: Liberal Democrat Members are grateful for the Minister's comments. The problem is that, even using my amended capital allowance system, it would take a considerable time—eight years—to ride out for tax purposes the cost of an asset. That is a long time. Even with my amendment, the allowances available in the United Kingdom compared with those available abroad put us right at the back of queue. We do not sufficiently encourage our shipbuilding and shipping industries. It is with regret that we have to force the matter to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 37, Noes 272.

Division No. 321]
[11.12 pm


AYES


Allan, Richard
Hughes, Simon (Southwark N)


Baker, Norman
Jones, Nigel (Cheltenham)


Ballard, Jackie
Kirkwood, Archy


Brake, Tom
Livsey, Richard


Brand, Dr Peter
Llwyd, Elfyn


Bruce, Malcolm (Gordon)
Michie, Mrs Ray (Argyll & Bute)


Burnett, John
Moore, Michael


Campbell, Menzies (NE Fife)
Morgan, Alasdair (Galloway)


Chidgey, David
Öpik, Lembit


Cotter, Brian
Rendel, David


Davey, Edward (Kingston)
Russell, Bob (Colchester)


Ewing, Mrs Margaret
Sanders, Adrian


Fallon, Michael
Smith, Sir Robert (W Ab'd'ns)


Foster, Don (Bath)
Swinney, John


George, Andrew (St Ives)
Tyler, Paul


Hancock, Mike
Wallace, James


Harris, Dr Evan
Webb, Steve


Harvey, Nick
Welsh, Andrew


Heath, David (Somerton & Frome)




Tellers for the Ayes:



Mr. Andrew Stunell and



Mr. Donald Gorrie.


NOES


Adams, Mrs Irene (Paisley N)
Browne, Desmond


Ainger, Nick
Buck, Ms Karen


Ainsworth, Robert (Cov'try NE)
Burden, Richard


Alexander, Douglas
Burgon, Colin


Anderson, Janet (Rossendale)
Byers, Stephen


Armstrong, Ms Hilary
Caborn, Richard


Ashton, Joe
Campbell, Alan (Tynemouth)


Atkins, Charlotte
Campbell, Mrs Anne (C'bridge)


Austin, John
Campbell, Ronnie (Blyth V)


Banks, Tony
Cann, Jamie


Beard, Nigel
Caplin, Ivor


Begg, Miss Anne
Casale, Roger


Bennett, Andrew F
Chapman, Ben (Wirral S)


Benton, Joe
Chaytor, David


Bermingham, Gerald
Chisholm, Malcolm


Berry, Roger
Clapham, Michael


Betts, Clive
Clark, Rt Hon Dr David (S Shields)


Blears, Ms Hazel



Blizzard, Bob
Clark, Dr Lynda (Edinburgh Pentlands)


Boateng, Paul



Borrow, David
Clark, Paul (Gillingham)


Bradley, Keith (Withington)
Clarke, Charles (Norwich S)


Bradley, Peter (The Wrekin)
Clarke, Tony (Northampton S)


Bradshaw, Ben
Clelland, David


Brinton, Mrs Helen
Coaker, Vernon


Brown, Rt Hon Nick (Newcastle E)
Coffey, Ms Ann



Cohen, Harry


Brown, Russell (Dumfries)
Coleman, Iain






Connarty, Michael
Hoon, Geoffrey


Cook, Frank (Stockton N)
Howarth, Alan (Newport E)


Corbyn, Jeremy
Howarth, George (Knowsley N)


Corston, Ms Jean
Hoyle, Lindsay


Cousins, Jim
Hughes, Ms Beverley (Stretford)


Cranston, Ross
Hughes, Kevin (Doncaster N)


Crausby, David
Humble, Mrs Joan


Cummings, John
Hutton, John


Cunliffe, Lawrence
Iddon, Dr Brian


Cunningham, Jim (Cov'try S)
Illsley, Eric


Dalyell, Tam
Jackson, Ms Glenda (Hampstead)


Davey, Valerie (Bristol W)



Davidson, Ian
Jackson, Helen (Hillsborough)


Davies, Rt Hon Denzil (Llanelli)
Jamieson, David


Davies, Rt Hon Ron (Caerphilly)
Jenkins, Brian


Davis, Terry (B'ham Hodge H)
Jones, Mrs Fiona (Newark)


Dawson, Hilton
Jones, Dr Lynne (Selly Oak)


Dean, Mrs Janet
Jones, Martyn (Clwyd S)


Denham, John
Keeble, Ms Sally


Dismore, Andrew
Keen, Alan (Feltham & Heston)


Dobbin, Jim
Keen, Ann (Brentford & Isleworth)


Donohoe, Brian H



Doran, Frank
Khabra, Piara S


Dowd, Jim
Kidney, David


Drew, David
Kilfoyle, Peter


Eagle, Angela (Wallasey)
King, Andy (Rugby & Kenilworth)


Eagle, Maria (L'pool Garston)
Kingham, Ms Tess


Ellman, Mrs Louise
Kumar, Dr Ashok


Ennis, Jeff
Ladyman, Dr Stephen


Etherington, Bill
Lepper, David


Field, Rt Hon Frank
Leslie, Christopher


Flint, Caroline
Lewis, Terry (Worsley)


Flynn, Paul
Liddell, Mrs Helen


Foster, Rt Hon Derek
Linton, Martin


Foster, Michael J (Worcester)
Livingstone, Ken


Foulkes, George
Lloyd, Tony (Manchester C)


Galbraith, Sam
Lock, David


Gapes, Mike
Love, Andrew


Gardiner, Barry
McAllion, John


George, Bruce (Walsall S)
McAvoy, Thomas


Gibson, Dr Ian
McCabe, Steve


Gilroy, Mrs Linda
McCafferty, Ms Chris


Godman, Dr Norman A
McCartney, Ian (Makerfield)


Goggins, Paul
McDonagh, Siobhain


Golding, Mrs Llin
McDonnell, John


Gordon, Mrs Eileen
McFall, John


Grant, Bernie
McGuire, Mrs Anne


Griffiths, Jane (Reading E)
McKenna, Mrs Rosemary


Griffiths, Nigel (Edinburgh S)
McLeish, Henry


Grogan, John
McNulty, Tony


Gunnell, John
MacShane, Denis


Hain, Peter
Mactaggart, Fiona


Hall, Mike (Weaver Vale)
Mahon, Mrs Alice


Hamilton, Fabian (Leeds NE)
Mandelson, Peter


Hanson, David
Marsden, Gordon (Blackpool S)


Heal, Mrs Sylvia
Marsden, Paul (Shrewsbury)


Henderson, Ivan (Harwich)
Marshall, David (Shettleston)


Heppell, John
Marshall, Jim (Leicester S)


Hewitt, Ms Patricia
Marshall-Andrews, Robert


Hill, Keith
Martlew, Eric


Hinchliffe, David
Maxton, John


Hoey, Kate
Meacher, Rt Hon Michael


Home Robertson, John
Meale, Alan





Merron, Gillian
Sheerman, Barry


Michael, Alun
Short, Rt Hon Clare


Milburn, Alan
Simpson, Alan (Nottingham S)


Miller, Andrew
Singh, Marsha


Mitchell, Austin
Skinner, Dennis


Moffatt, Laura
Smith, Rt Hon Andrew (Oxford E)


Morgan, Ms Julie (Cardiff N)



Morgan, Rhodri (Cardiff W)
Smith, Miss Geraldine (Morecambe & Lunesdale)


Morris, Ms Estelle (B'ham Yardley)




Smith, Llew (Blaenau Gwent)


Mudie, George
Soley, Clive


Mullin, Chris
Southworth, Ms Helen


Murphy, Jim (Eastwood)
Spellar, John


O'Brien, Bill (Normanton)
Squire, Ms Rachel


O'Brien, Mike (N Warks)
Steinberg, Gerry


Olner, Bill
Stevenson, George


O'Neill, Martin
Stewart, Ian (Eccles)


Organ, Mrs Diana
Stoate, Dr Howard


Osborne, Ms Sandra
Stott, Roger


Palmer, Dr Nick
Strang, Rt Hon Dr Gavin


Pearson, Ian
Stringer, Graham


Pendry, Tom
Stuart, Ms Gisela


Pickthall, Colin
Sutcliffe, Gerry


Pike, Peter L
Taylor, Rt Hon Mrs Ann (Dewsbury)


Plaskitt, James



Pope, Greg
Temple-Morris, Peter


Pound, Stephen
Thomas, Gareth R (Harrow W)


Powell, Sir Raymond
Timms, Stephen


Prentice, Ms Bridget (Lewisham E)
Touhig, Don



Trickett, Jon


Prentice, Gordon (Pendle)
Truswell, Paul


Primarolo, Dawn
Turner, Dennis (Wolverh'ton SE)


Prosser, Gwyn
Turner, Dr Desmond (Kemptown)


Purchase, Ken



Quin, Ms Joyce
Twigg, Derek (Halton)


Quinn, Lawrie
Vaz, Keith


Radice, Giles
Vis, Dr Rudi


Rammell, Bill
Walley, Ms Joan


Reed, Andrew (Loughborough)
Wareing, Robert N


Reid, Dr John (Hamilton N)
Watts, David


Robertson, Rt Hon George (Hamilton S)
White, Brian



Whitehead, Dr Alan


Roche, Mrs Barbara
Wicks, Malcolm


Ross, Ernie (Dundee W)
Williams, Alan W (E Carmarthen)


Rowlands, Ted
Winnick, David


Roy, Frank
Wood, Mike


Ruddock, Ms Joan
Woolas, Phil


Russell, Ms Christine (Chester)
Wright, Anthony D (Gt Yarmouth)


Ryan, Ms Joan



Salter, Martin
Wright, Dr Tony (Cannock)


Savidge, Malcolm
Tellers for the Noes:


Sedgemore, Brian
Jane Kennedy and


Shaw, Jonathan
Mr. Jon Owen Jones.

Question accordingly negatived.

Further consideration adjourned.—[Mr. Robert Ainsworth.]

Bill to be further considered tomorrow.

Orders of the Day — RAF Northolt

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]

Mr. John Wilkinson: I am grateful for the opportunity to raise the future of RAF Northolt. To many, not least to my constituents, it is incredible that the future of such an historic air force station—which fulfils its current role so well, and which is so warmly appreciated by those who work there, live nearby or benefit from its services—should be called into question.
It is little wonder that RAF Northolt is appreciated. Founded as a Royal Flying Corps station in 1915, it was in the thick of the battle of Britain, No. 303 Polish Squadron achieving more kills than any squadron in Air Chief Marshal Dowding's order of battle. Today, its proud traditions are maintained and heightened by the presence of No. 32 (The Royal) Squadron, which has assumed the duties of the Queen's Flight and provides invaluable communications flying for Ministers, service chiefs, senior civil servants and diplomats—as well as, of course, for the royal family.
Nearby national and North Atlantic Treaty Organisation headquarters, like those at Northwood, High Wycombe and Bentley Priory, benefit from having such an Air Force-controlled facility on the doorstep, as do those in the royal palaces, Whitehall, Westminster, allied embassies and military staffs who need a secure specialist unit and a transport facility of their own on which they can totally rely, not only in peacetime but in time of national emergency or war—a unit that will always give priority to their requirements. It should be remembered that RAF Northolt houses other distinguished units, including No. 1 Maritime headquarters unit of the Royal Auxiliary Air Force and the air information development unit.
There has been a tendency for RAF Northolt to acquire additional units as small military establishments in London are closed, which makes good economic and military sense. It is the happy partnership between the station and the local community that makes RAF Northolt so special. People remember well the late 1940s and early 1950s when Northolt was an airport for London, and the home of British European Airways. However, the jet era is very different from the age of piston-engined DC3 Pionairs and Vikings, and local people definitely do not want RAF Northolt to become a civil airport again—ever.
The physical constraints to the aerodrome are far too great. I have seen an old photograph of a twin piston-engined aircraft that crashed on to a Ruislip rooftop. The driver of a van on the A40 last August—whose vehicle was struck by a Spanish Lear jet which overran the 5,400 ft runway—will not forget the experience. I expect that he was glad that it was not a big airliner.
The present co-existence of military flights with a strictly limited number of civil movements is tolerated by the local community. Any relaxation in the limitations for civil aircraft will be unacceptable to local people, and they and their elected representatives, at local and national level, have repeatedly said so to the Government with complete consistency and unanimity, regardless of party affiliation.
The limits on civil flights at Northolt are from 0800 to 2000 local time; by prior permission only, with a maximum of 28 movements a day, Monday to Friday; no noisy aircraft; no aircraft with more than 30 seats; and, above all, no scheduled services. Those sensible restrictions have been upheld by successive Defence and Transport Ministers. The only change was a six-month trial, from 1 October 1996 to 31 March 1997, of an 0700 hours opening for civil flights, after which trial the old regime was wisely restored.
There have been periodic scares over the years. The Transport Committee, in its report on UK airport capacity in the 1995–96 Session, said:
RAF Northolt might be employed as a satellite of Heathrow which, because of its small size, would provide capacity which could only be used by small aircraft of the sort that, particularly on UK regional flights, are being crowded out of Heathrow. We realise that ATC problems make intensive use of Northolt's existing runways difficult as it is near Heathrow and its runways are not fully parallel to those at Heathrow; flight paths of aircraft therefore cross those of aircraft using Heathrow.
However it was suggested that it would be possible to build a new runway at Northolt, parallel to those at Heathrow, which as far as ATC was concerned could be treated as a third Heathrow runway. We support the use of Northolt as a 'feeder reliever' airport for Heathrow. The Government should make funds available to NATS to study how the ATC difficulties of using Northolt could be overcome. Redhill aerodrome might also have a useful role as a 'feeder-reliever' for Gatwick.
The Committee's wholly unrealistic recommendations were lifted uncritically from a memorandum to the Committee from SH and E Air Transport Consultants, which amazingly proposed in paragraph 5.11 of its submission:
Taken together the development of Redhill for Gatwick and Northolt for Heathrow would increase the capacity of the premier London airports by 30 million passengers per annum or more.
I wonder which commercial interest inspired SH and E's wild hyperbole. It proposed in paragraph 5.6:
The eventual aim would be for both Northolt and Redhill to be marketed as an integral part of Heathrow and Gatwick…By way of illustration the distance between the two would be approximately five miles or eight minutes by road.
In fact, the journey through the rush-hour traffic between Heathrow and Northolt can easily be half an hour or more.
No wonder the Government's official observations in House of Commons paper 644, on the Select Committee's report, were dismissive of the Committee's proposals. They said:
The Government does not consider that Northolt is a suitable site for the development of a civil airport on the scale that would be necessary to provide significant relief to Heathrow. It does not therefore consider it worthwhile to invite NATS to undertake a study of ATC constraints. The Government considers that Northolt does have the potential to provide useful if limited facilities for business aviation, and in parallel with this response it will set out its plans to increase the attractiveness of the facilities for business aviation, taking account of local interests. An earlier consultation on the possibility of a civil enclave for business aviation suggested that privatisation is not likely to be a realistic proposition for such a small-scale and limited civil operation.
Those were the observations of a Conservative Administration.
There matters should have rested. Luton airport, now with commercial management, will expand its already growing traffic for airline and business traffic alike, while in a few days' time, a public inquiry will begin into opening Farnborough, supported by Rushmoor council, to


21,000 air transport movements a year from Farnborough's long runway. That is three times the current annual limit of movements for RAF Northolt, with its very short runway.
I took a delegation of Labour councillors from Northolt's local authority—Hillingdon—to meet the Minister for Transport in London on 9 February this year. In a briefing note on the civil use of RAF Northolt, Hillingdon council stated:
Hillingdon is opposed to any further increase in civil use at Northolt including a permanent increase in operating hours from 7 am, any civil use at weekends, an increase above the 7,000 annual civil transport movements, an increase in the size of civil aircraft using Northolt over 30 seats.
One might expect a Labour Government to accede to representations from a Labour council, but it was merely told to await the outcome of the strategic defence review. We heard later, not then, that the Department of the Environment, Transport and the Regions had sponsored consultants to do a study of business aviation in the south-east of England.
Then Stagecoach, which owns Prestwick airport, rolled on to the scene this summer with proposals put to the Transport Committee which, if the press is to be believed, resurrected the proposals for Northolt previously submitted to, and regurgitated by, the Transport Committee two years ago—proposals that were rightly rejected by the Government for sound technical and environmental reasons.
Interestingly, following my oral defence question to the Minister for the Armed Forces, whom I see on the Front Bench—a question about RAF Northolt put on 22 June—I received an unsolicited letter dated 26 June from the chairman of the European Business Aviation Association, Mr. Brian Humphries:
Like you, we do not want Northolt to be developed and expanded to take larger aircraft and scheduled services. As such, we are totally opposed to the kind of plans which Stagecoach are allegedly putting forward to turn Northolt into a satellite of Heathrow.
The future of RAF Northolt is a test case. The USA has a military air force base, Andrews, beside the capital, Washington DC. France has Villacoublay beside Paris. RAF Northolt should similarly be retained with no change to its status or role.

Mr. Stephen Pound: I have received a similar letter from Brian Humphries, whom the hon. Gentleman quotes correctly. What is your opinion—

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. The hon. Gentleman must realise that he is now addressing the Chair.

Mr. Pound: I do beg your pardon, Mr. Deputy Speaker. Would the hon. Gentleman care to comment on the other question posed in the letter? It asks: if military use is declining, what would be the possibility of an increase of executive jet usage of the airport?

Mr. Wilkinson: The letter did not put it in those terms; it mentioned spare capacity, and I took that to mean that the 7,000 permitted civil movements a year were not fully taken up.
The environment of west London is under constant threat, with seemingly endless traffic jams, much excessive ambient noise, and insidious urbanisation of the few open spaces that remain. RAF Northolt and the small patches of green belt alongside are about the last remaining semi-rural areas left between Marble Arch and the M25.
Unemployment in my constituency is the lowest in Greater London—jobs are not, at least for the time being, a problem. Preserving an acceptable residential environment is, however, a constant challenge. RAF Northolt has seen off the dangerous challenge of the Luftwaffe in the past. The threat is more insidious today: the ambitions of those who want to impose on the site a three-runway London airport. It would take in a significant chunk of west London, regardless of the wishes of local people, and regardless of the irreparable damage to a swathe of residential Middlesex which would ensue.
I beg to suggest to the Minister that he keep RAF Northolt as it is. That would best suit the interests of the Ministry that he represents, and the interests of my constituents and those who live around the airfield.

The Minister for the Armed Forces (Dr. John Reid): I always listen with interest to the remarks of the hon. Member for Ruislip-Northwood (Mr. Wilkinson) on matters relating to the Royal Air Force, but I listened with particular interest this evening, and at Defence questions on Monday 22 June, when he drew attention to the subject of the future of Royal Air Force Northolt. Obviously, Northolt and its future are matters of great interest to him: he is a staunch defender of and doughty fighter for his constituency interests, and he has wider concerns about the operational effectiveness of the Royal Air Force—in which he has a deep interest—and the contribution that Northolt makes to it.
The views of the hon. Member for Ruislip-Northwood on the subject are by no means confined to one hon. Member or to one party. My hon. Friend the Member for Brent, North (Mr. Gardiner), whose constituents are on the flight path, has expressed similar concerns to me, and obviously my hon. Friends the Members for Ealing, North (Mr. Pound) and for Harrow, West (Mr. Thomas) and a number of other hon. Members have similar feelings.

Mr. John McDonnell: As my hon. Friend said, this is not an isolated concern of the hon. Member for Ruislip-Northwood (Mr. Wilkinson); it is a concern of all the Hillingdon Members of Parliament. My hon. Friend needs to confer with his colleagues in the Department of the Environment, Transport and the Regions because, in my constituency, we are facing the environmental blight of the potential development of Northolt, sandwiched with the environmental threat of terminal 5, and even a third runway, obliterating the villages in the south of my constituency. All those factors need to be taken into account in any decision on the future of Northolt airport. We need to take into account the environmental degradation of our constituencies by the airport industry

Dr. Reid: I shall mention the wider consideration of those matters that is being undertaken by the Department that my hon. Friend mentioned.
Hon. Members on both sides of the House know that, as was said, the principal task of Royal Air Force Northolt is to support the requirement for operational communications flying and VIP flying. As the hon. Member for Ruislip-Northwood said, that requirement is met by No. 32 (The Royal) Squadron. As he also said, several other units are based at RAF Northolt, including a bomb disposal unit, the headquarters of the south-east region of the air cadets, the aeronautical information documents unit and one or two units which the hon. Gentleman mentioned. That is not all that takes place. In line with my Department's policy of public access to the defence estate, RAF Northolt allows civil use of its irreducible spare capacity—the capacity which it is necessary to keep on the books and in the ambit of the defence budget, but which is not fully used at all times.
I am pleased to report that the civil use of RAF Northolt also generates significant receipts for the defence budget and, obviously, for the taxpayer. Indeed, for the financial year 1997–98, receipts amounting to about £948,000 were generated by civil use at Northolt—a more than 20 per cent. increase on the previous year.
I hope that the hon. Member for Ruislip-Northwood will be assured that my Department is well aware of concerns about the impact of flying—especially civil aviation—on the local environment at RAF Northolt, in light of responses which I gave him when he raised the matter previously. Indeed, in view of those concerns, the Ministry of Defence, as he said, has restricted civil use of RAF Northolt to the hours between 8 am and 8 pm, mainly on weekdays. Civil use at weekends is allowed only when the station is open for operational reasons.
We have also set a limit of 7,000 civil movements in the year. That figure includes business aviation and other civil operations, but excludes movements on Ministry of Defence or other Government business. The latest figures that we have show that, during 1997, there were 6,958 such civil movements—slightly fewer than the number of military movements in and out of Northolt last year. The care that the Department has taken in those restrictions is testimony to our awareness of the impact on the local community and the feelings of local people.
In addition to restrictions on the times at which civilian aircraft may operate and the number of movements allowed, we allow only quieter civil aircraft to use Northolt. Only civil aircraft that can carry a maximum of 30 passengers are normally allowed use of the airfield.
On the main question about the future of RAF Northolt, it is true that, as part of the Government's strategic defence review, we have been considering the future of Northolt as an RAF station and the wider implications. That should not be taken as a unique study, as the strategic defence review, the results of which we shall hear in the near future, was a scrutiny of all defence assets. There is no sense in which RAF Northolt was chosen again for consideration. It was part of a wide-ranging scrutiny by Ministers and officials.
Although it would be premature to comment in detail on the outcome of the defence review, no options have been discounted as regards RAF Northolt. Much work remains to be done in considering them, and no imminent decisions on RAF Northolt are likely to be sprung on the House.

Mr. John Randall: The Minister can gauge the strength of feeling from the number of hon. Members

present who represent surrounding areas. Can he give us an assurance that, if a decision was taken to change the status of RAF Northolt, there would be wide public consultation? That would show the strength of feeling against any change in the current status of RAF Northolt.

Dr. Reid: I know that the hon. Gentleman has an interest in the subject, and we have discussed these matters before. I shall come to such an assurance shortly.
As my hon. Friend the Member for Hayes and Harlington (Mr. McDonnell) pointed out in his intervention, there are many factors to be taken into account before proposals can be considered. For my Department there is the work, not only of the strategic defence review, but of the strategic development plan for the defence estate in the Greater London area, which will include RAF Northolt. There is also the work that my right hon. Friend the Secretary of State for the Environment, Transport and the Regions has set in hand on business aviation in the south-east, and the forthcoming integrated transport White Paper that will provide a framework for subsequent work on airports policy.
Those various factors mean that early proposals on the future of RAF Northolt are highly unlikely. I can assure hon. Members that the concerns of the local community will be an important consideration in all this on-going work. It could not be otherwise.
The hon. Member for Ruislip-Northwood mentioned the trials held between 1 October 1996 and 31 March 1997, in the last year of the previous Conservative Government. A trial was conducted into extending RAF Northolt's opening hours. The Ministry of Defence and the Department of Transport had jointly identified possible changes to working arrangements at RAF Northolt that might improve services offered to users, in view of pressures on existing runway capacity.
The hon. Gentleman identified the changes that were made during that period. The opening of the airport at 7 am on weekday mornings, instead of the usual time of 8 am, attracted 153 additional civil movements over the six-month trial period. Eighty of those movements were new business, and the remaining 73 were movements that would otherwise have taken place within standard opening hours.
Consideration of much wider aspects is now taking place. I know that it will raise concerns, and I am trying to assuage the fears of local Members and their constituents that anything will be done without maximum consultation, or that anything is likely to be done imminently. The consideration may take several months, perhaps until the beginning of next year, and possible effects over a long time scale are being examined.

Mr. Barry Gardiner: rose—

Dr. Reid: Before I give way, I stress that any emerging proposals will be subject to full consultation not only with local individuals and Members of Parliament but with those local authorities and local communities that could potentially be affected. In the meantime—I hope that this assures hon. Members—I am prepared to guarantee tonight that, while the work is going on, there will be no increase in the current ceiling of 7,000 civil movements a year. I am also prepared to guarantee that the airfield's


opening hours will remain as they are now and will not be extended. Any change countenanced at any stage would involve the fullest consultation.

Mr. Gardiner: I am grateful to the Minister for giving way on that point and for delaying my intervention. That guarantee is extremely welcome to my constituents from Roe Green, Kingsbury, Kenton and Sudbury who are affected by aircraft movements and who have made representations to me. The Minister will be aware of the question that I tabled about the reduction of the defence estate in London. I know that he is aware also of the response that his Department provided to me earlier today. Will he give an assurance that the existing studies—particularly those relating to RAF Northolt—will be taken into account in the strategic defence review and in the reduction of the defence estates review in London?

Dr. Reid: I assure my hon. Friend that, if those studies were not taken into account, they would be the only studies in the past 10 years that were not involved in the strategic defence review scrutiny. I assure my hon. Friend that we have spent many days, weeks and indeed months—up until, literally, the past few hours—compiling the finest details of the strategic defence review. Other matters, such as this one, will emanate from it and will require further study. I know that my hon. Friend received a response this morning from the Under-Secretary of State for Defence, my hon. Friend the Member for Warley (Mr. Spellar), and I hope that that has gone some way towards allaying his fears.
We are well aware of the opposition of local authorities and local communities to extended opening, and we have taken careful note of the representations that they have made about the matter. I repeat that no decision has been taken to extend the arrangements under the trial to a more permanent footing.
As I told the House at Defence questions last Monday, my Department has received a number of unsolicited approaches about the use of spare capacity at RAF Northolt. Most of those approaches were very tentative. I have answered written questions about the specific approach that was raised, but I reassure all hon. Members that no one from the Ministry of Defence—or any other Department, to my knowledge—has been going around soliciting offers for the extension or the transformation of RAF Northolt.
I hope that my few remarks and the guarantees that I have given tonight have assuaged people's fears and assured the hon. Member for Ruislip-Northwood, and others who are deeply interested in the issue, that the fullest consideration will be given to their views if any change were countenanced. No decision is likely in the near future—we are thinking perhaps about the end of this year or the beginning of next year—and, even after that, there will be maximum consultation.
In the interim, there will be no change to the hours in the morning as per the last trial, and no extension to the number of civil movements. I hope that the fact that I have given those guarantees and assurances and the spirit in which my Department has acted is testimony to how seriously we take the hon. Gentleman's points.

The motion having been made after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at seven minutes to Twelve midnight.